Applied Genetic Technologies Corporation
2015
ANNUAL REPORT
Dear Shareholder:
The past year has brought significant progress for AGTC as evidenced by the multiple corporate and clinical
milestones that continue to establish our company as a leader in ophthalmology gene therapy. With our lead clinical
program now in human studies and recent collaborations expanding our resources, we are advancing toward our goal of
providing life-changing therapies for patients with severe eye diseases with limited or no currently available treatments.
Our robust product pipeline includes five named ophthalmology development programs across four indications:
X-linked retinoschisis (XLRS), X-linked retinitis pigmentosa (XLRP), achromatopsia and wet age-related macular
degeneration (AMD) as well as one non-ophthalmology program – alpha-1 antitrypsin deficiency – and proof-of-
concept data in multiple additional indications.
Our most advanced product candidate is for the treatment of XLRS, an inherited retinal disease which causes poor
visual acuity in young boys and can lead to serious complications, including vitreous hemorrhage or retinal
detachment, or progress to legal blindness in adult men. Our XLRS program entered the clinic this year and the Phase
1/2 clinical trial is currently ongoing.
Achromatopsia is an inherited condition associated with severe impairment of visual acuity, extreme light
sensitivity resulting in daytime blindness and total loss of color discrimination. AGTC has two achromatopsia
programs; we expect to report initial clinical data for our achromatopsia B3 program in 2016, and to initiate a
preclinical toxicology and biodistribution study for the second program, achromatopsia A3, by the end of the year.
In addition to these programs, we are also working to advance our programs in XLRP, AMD and several new
indications, three of which are partnered with Biogen and have yet to be announced.
In April, we announced a collaboration agreement with 4D Molecular Therapeutics (4DMT), a leader in gene
therapy capsid research. 4DMT’s AAV vector discovery platform and extensive library of capsids are a valuable
resource as we continue to discover and develop optimized AAV vectors to treat ophthalmic disease indications with
high unmet medical needs.
In July, we announced a major strategic collaboration with Biogen to develop gene therapies in ophthalmology.
This partnership will enable us to expedite development of our lead programs as well as expand our pipeline to include
additional therapeutic indications, creating even more commercial opportunities for us. As part of the collaboration, we
received an upfront payment in the amount of $124 million and a commitment by Biogen to pay for a significant
portion of the development costs of the partnered programs. Over time, we are eligible to receive upfront and milestone
payments exceeding $1 billion. We have already completed the first collaboration milestone – a patient enrollment
milestone in the XLRS clinical study – triggering an additional $5 million payment from Biogen.
With this collaboration, Biogen has licensed our XLRS and XLRP programs, while our achromatopsia and AMD
programs remain wholly owned by AGTC. Likewise we are working with Biogen on a group of early-stage programs,
while several additional early-stage programs remain wholly owned by AGTC. By collaborating with Biogen on select
product candidates, we are able to maintain a solid financial position while retaining significant independent value.
To support our growth and progress, we are continuing to expand our team and have made several key
appointments in the past 12 months. To accommodate this expansion and to facilitate better collaboration with Biogen,
we have also announced the opening of a second AGTC office in Cambridge, Massachusetts.
This is an exciting time for AGTC, and we have many more milestones to look forward to over the coming months
and into 2016. I would like to thank our employees and collaborators for their outstanding contributions, as well as our
shareholders for your continued support as we work to improve the lives of patients across the globe.
Sincerely,
Sue Washer
President and Chief Executive Officer
Applied Genetic Technologies Corporation
October 16, 2015
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 2015
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
(State or Other Jurisdiction of
Incorporation or Organization)
59-3553710
(I.R.S. Employer
Identification No.)
11801 Research Drive
Suite D
Alachua, Florida 32615
(Address of Principal Executive Offices, Including Zip Code)
(386) 462-2204
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of class
Common Stock, $.001 par value
Name of exchange on which registered
NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
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 and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted 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 and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The aggregate market value of the voting common shares held by non-affiliates of the registrant was approximately $83.4 million, computed by reference to the
closing sale price of the common stock as reported by The NASDAQ Global Market on December 31, 2014, the last trading day of the registrant’s most recently
completed second fiscal quarter. The Company has no non-voting common shares.
As of August 31, 2015, a total of 17,953,531 shares of the registrant’s common stock, $0.001 par value per share, were outstanding.
Portions of the definitive Proxy Statement for the registrant’s Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission on or
before October 28, 2015 are incorporated by reference in Part III of this Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
APPLIED GENETIC TECHNOLOGIES CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED JUNE 30, 2015
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business .............................................................................................................................................................
Risk Factors .......................................................................................................................................................
Unresolved Staff Comments ..............................................................................................................................
Properties ...........................................................................................................................................................
Legal Proceedings ..............................................................................................................................................
Mine Safety Disclosures ....................................................................................................................................
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ............................................................................................................................................................
Selected Financial Data ......................................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations .............................
Quantitative and Qualitative Disclosures About Market Risk ...........................................................................
Financial Statements and Supplementary Data ..................................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............................
Controls and Procedures ....................................................................................................................................
Other Information ..............................................................................................................................................
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance .................................................................................
Executive Compensation ...................................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ..........
Certain Relationships and Related Transactions, and Director Independence ...................................................
Principal Accounting Fees and Services ............................................................................................................
PART IV
Item 15.
Exhibits and Financial Statement Schedules ......................................................................................................
SIGNATURES ............................................................................................................................................................................
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including the sections entitled “Business,” “Risk Factors” and “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements. These statements may relate
to, but are not limited to, expectations of our future results of operations, 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 are inherently subject to risks and uncertainties, some of which cannot be predicted or
quantified. These risks and other factors include, but are not limited to, those listed under “Risk Factors.” In some cases, you can
identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,”
“believe,” “estimate,” “predict,” “intend,” “potential,” “might,” “would,” “continue” or the negative of these terms or other
comparable terminology. These statements are only predictions. Actual events or results may differ materially.
There may be events in the future that we are not able to accurately predict or control and that may cause our actual results to
differ materially from the expectations we describe in our forward-looking statements. Except as required by applicable law,
including the securities laws of the United States and the rules and regulations of the SEC, we do not plan to publicly update or revise
any forward-looking statements contained in this Annual Report on Form 10-K after we file it, whether as a result of any new
information, future events or otherwise. Before you invest in our common stock, you should be aware that the occurrence of any of the
events described in the “Risk Factors” section and elsewhere in this Annual Report on Form 10-K could harm our business,
prospects, operating results and financial condition. Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
Except as otherwise indicated, all share and per share information referenced in this report has been adjusted to reflect the 1-
for-35 reverse split with respect to our common stock effected on March 4, 2014.
As used herein, except as otherwise indicated by context, references to “we,” “us,” “our,” or the “Company” refer to Applied
Genetic Technologies Corporation.
ITEM 1.
BUSINESS
Overview
PART I
We are a clinical-stage biotechnology company developing gene therapy products designed to transform the lives of patients
with severe diseases in ophthalmology. We believe our proprietary gene therapy platform and our expertise in viral vector selection,
design, delivery and manufacturing will facilitate the rapid clinical advancement and regulatory approval of our product candidates
and enhance their therapeutic and commercial potential.
Our lead product candidates include treatments for X-linked retinoschisis, or XLRS, two forms of achromatopsia, or ACHM,
and X-linked retinitis pigmentosa, or XLRP. These four orphan diseases of the eye are caused by mutations in single genes,
significantly affect visual function and currently lack effective medical treatments.
XLRS is characterized by abnormal splitting of the layers of the retina, resulting in poor visual acuity in young boys,
which can progress to legal blindness in adult men. We currently are enrolling patients in a Phase 1/2 clinical trial with
our XLRS product candidate and anticipate having initial clinical data from early cohorts around the end of calendar year
2015.
ACHM is characterized by the absence of cone photoreceptor function, resulting in extremely poor visual acuity, light
sensitivity, day blindness and complete loss of color discrimination. We expect to file an IND for our first ACHM product
candidate in late 2015, and thereafter to initiate a Phase 1/2 clinical trial in the United States. We expect development of
our second ACHM product candidate to follow shortly behind this timeline.
We have also begun preclinical studies for our product candidate addressing XLRP, a disease characterized by progressive
degeneration of the retina, which can lead to total blindness in adult men. For our XLRP product candidate, we expect to
file an IND in late 2016, and thereafter to initiate a Phase 1/2 clinical trial in the United States.
Finally, we are utilizing our previous experience in wet AMD to evaluate new potential product candidates. We expect to
announce one or more product candidates for AMD in late 2015.
1
On July 1, 2015, we entered into a broad collaboration and license agreement with Biogen MA Inc., a wholly owned subsidiary
of Biogen Inc. (“Biogen”), to develop gene-based therapies for multiple ophthalmic diseases including the XLRS and XLRP programs
and three discovery programs. We will be responsible for the clinical development programs of XLRS through product approval and
of XLRP through the completion of first-in-human trials. Biogen will support the clinical development costs, subject to certain
conditions, following the first-in-human study for XLRS and IND-enabling studies for XLRP.
Our gene therapy platform is based on viral vectors that utilize a modified version of the non-replicating adeno-associated virus,
or AAV, to deliver a functional copy of a gene to the patient’s own cells through a variety of delivery methods, and we have obtained
preliminary indications of safety and efficacy in clinical trials. These vectors deliver the functional genetic material to the nucleus of
the cell, providing safe, sustained expression of the therapeutic protein to treat the disease without modifying the existing DNA of the
patient.
We have developed extensive internal expertise in the selection and design of viral vectors - including capsids, promoters,
expression cassettes, formulation, delivery and manufacturing that is supported by a broad intellectual property estate. Our proprietary
AAV vector manufacturing process is both reproducible and scaleable with a favorable cost of goods. We have assembled an
experienced management team and a world-class group of scientific advisors, and we have strong collaborative relationships with key
opinion leaders in the field of gene therapy. Combining these attributes, we have built a gene therapy platform that we believe will
provide patients with treatments that may have life-long clinical benefits, potentially based on a one-time therapeutic administration.
We and our scientific collaborators have generated human proof-of-concept data that we believe provide preliminary evidence
of the safety and efficacy of our gene therapy approach through preclinical studies and clinical trials in two other eye diseases: Leber
congenital amaurosis (type 2), or LCA2, a form of early onset retinal degeneration caused by mutations in the RPE65 gene, and the
wet form of age-related macular degeneration, or wet AMD, an eye disease affecting a large patient population.
Our strategy is to leverage the capabilities of our gene therapy platform to address diseases in ophthalmology where there is
significant unmet medical need. We have concentrated initially on underserved orphan indications that are small enough to allow for
clinical trials on a manageable scale but prevalent by orphan disease standards and that provide markets that we believe we can serve
using a small, targeted commercial infrastructure. The eye diseases we are targeting are well understood with highly predictive animal
models and clearly defined clinical endpoints, characteristics that we believe will facilitate clinical development and regulatory
approval of our product candidates. We believe our initial focus on these orphan eye diseases will provide us with an attractive
business opportunity and position us to drive the advancement of gene therapy technology. We plan to leverage our experience in
orphan ophthalmology to develop new treatments for eye diseases with larger patient populations, such as wet AMD. We will also
evaluate opportunities to extend the commercial application of our gene therapy platform in other underserved indications beyond
ophthalmology.
Our AAV vectors can be used to introduce functional genes into many different cell types by a variety of delivery methods and
can carry genes of up to 4,000 base pairs in length, a payload capacity sufficient to accommodate more than 90% of the individual
genes in the human genome. We have developed a proprietary manufacturing process that we believe will enable our vectors to be
manufactured reliably, and at high quality, on a commercial scale. Our gene therapy platform therefore has the potential to provide
treatments for many other diseases outside of our current focus on orphan ophthalmology, including those with large dosing
requirements or in larger markets. We have already conducted preclinical proof-of-concept studies and Phase 1 and Phase 2 clinical
trials of a treatment for alpha-1 antitrypsin deficiency, or AAT deficiency, an inherited orphan lung disease. We expect to explore
other therapeutic areas selectively, either alone or through partnerships.
2
The chart below summarizes our current gene therapy programs:
Our initial focus on orphan ophthalmology
Many chronically debilitating diseases for which there are currently no effective treatments have patient populations too small to
attract the interest of large commercial entities. We believe that such orphan diseases can provide us with an attractive business
opportunity. We are concentrating initially on several underserved diseases that are prevalent by orphan disease standards but small
enough to allow for clinical trials on a manageable scale and to provide markets that we believe we can serve using a small, targeted
commercial infrastructure.
We have focused on orphan ophthalmology because we believe there is a significant unmet medical need in eye diseases. The
diseases we are targeting are also of interest to us due to a number of factors that, in combination, have enabled us to screen and more
accurately predict the potential safety and efficacy of products at an early stage of development:
Well-understood disease mechanisms. Because sight is the most important sense to humans—many people fear blindness
more than premature death—even very rare diseases that cause vision loss have been studied extensively and are well-
understood down to the molecular mechanism of action.
Monogenic diseases. We are initially pursuing eye diseases where the genetic abnormality is known and is caused by
mutations in a single gene, known as monogenic diseases. We therefore know exactly what gene sequence to insert into
the patient’s cells, thus mitigating the uncertainty of disease biology.
Highly predictive animal models. For many eye diseases there are highly predictive animal models in which the disease is
caused by the same underlying genetic defect and has clinical outcomes that are similar to those in humans.
Local delivery of therapeutic agent. Direct delivery to the eye of a therapeutic agent, via methods already widely used in
ophthalmology, allows us to use lower doses, with reduced risk of unintended effects.
Short time to clinical data. In XLRS and ACHM, we expect to obtain meaningful clinical data within six months after a
one-time administration of the product candidate to a patient, which we believe will facilitate the clinical development of
our product candidates.
Ophthalmology is also attractive to us as a clinical stage company because treatments for diseases affecting vision have clearly
defined, objective clinical endpoints with validated measurement tools that are accepted by the FDA. Other orphan drug companies
have spent considerable time and resources working with the FDA to identify acceptable clinical endpoints and develop measurement
tools in sometimes ill-defined diseases. In ophthalmology the four accepted endpoints—visual acuity, visual fields, contrast sensitivity
and color vision—are well understood, routinely measured by clinicians, and the FDA consistently applies them and provides
guidance on how much improvement is required for clinical relevancy. We believe these clearly defined endpoints will help accelerate
the process of clinical study and regulatory approval for our ophthalmic products.
3
Finally, through our internal research work and in collaboration with partners, we have obtained preliminary safety data in
clinical trials with the two major delivery routes used in ophthalmology: intravitreal and subretinal injection. In clinical trials
conducted by our licensee Genzyme, 19 patients with wet AMD were treated by intravitreal injection of an AAV vector, and in other
trials conducted by us and others more than 50 patients with LCA2 have been treated with subretinal injections of AAV vectors, in
both cases without reports of serious adverse events attributed to the vector, and with promising indications of efficacy for LCA2
patients.
Our strategy
Our objective is to become the world leader in developing and commercializing gene therapy treatments for eye diseases, and
thereby to provide a better life for patients with these diseases, for which in some cases there are no currently available treatments.
Our strategy to accomplish this goal is to:
Develop and commercialize drugs in orphan ophthalmology. Our lead product candidates are treatments for the severe
orphan eye diseases XLRS, ACHM, and XLRP. Given the severity of these diseases and the current lack of treatment
options, a one-time-treatment alternative that corrects the underlying genetic defect would provide superior long-term
value for patients, their families and the healthcare system more broadly.
Expand our position in ophthalmology.
Continue our leadership position in orphan ophthalmology. We have developed significant experience in the
orphan ophthalmology space through our work on XLRS, ACHM, XLRP and LCA2. We have strong relationships
with key opinion leaders in the field and with leading patient advocacy groups. We have received grants aggregating
$8.9 million from the Foundation Fighting Blindness, or FFB, the National Institutes of Health, or NIH, the
National Eye Institute, or NEI, and the FDA. Our scientific advisory board is comprised of leaders in the fields of
ophthalmology and genetics, including one of our scientific founders, William W. Hauswirth, Ph.D., the Rybaczki-
Bullard Professor of Ophthalmology and Molecular Genetics at the University of Florida College of Medicine.
Expand our product offerings to wet AMD. We plan to develop new treatments for wet AMD by leveraging our
experience developing products in orphan ophthalmology and our work with Genzyme on a first generation product
for wet AMD. Advances have been made in understanding of the disease etiology and the number of known
potential targets has increased since the first anti-VEGF gene therapy programs were designed. We plan to use our
resources and access to experts in this field to evaluate these new targets and rapidly move a product candidate into
the clinic.
Seek opportunities for strategic partnerships and acquisitions in ophthalmology gene therapy. On July 1,
2015, we entered into a broad collaboration and license agreement with Biogen to develop gene-based therapies for
multiple ophthalmic diseases including the XLRS and XLRP programs and three discovery programs. We believe
there may be additional opportunities for us to partner with newly commercial companies and academic groups. We
expect that our breadth of experience in research, manufacturing, clinical and regulatory matters will help us to
identify and execute in- licensing, co-development arrangements, intellectual property acquisitions or
manufacturing agreements that would further extend our leadership position in ophthalmology gene therapy.
Extend our expertise in AAV vector design, delivery and manufacturing. We believe that our understanding of our
target indications and our robust internal expertise in viral vector design, physical vector delivery, vector manufacturing,
clinical trial design and clinical trial conduct are significant competitive advantages. We intend to continue to devote
substantial resources to developing the science underlying successful AAV vector design and delivery including external
research collaborations with companies such as 4D Molecular Therapeutics to deploy its proprietary AAV vector
discovery platform to identify and optimize novel next-generation vectors to target specific cell populations within the
human retina that can be used in future product development, as well as to expand the capabilities of our reproducible,
scalable manufacturing process.. We also intend to enhance our discovery capabilities and reduce our reliance on external
research at academic organizations by expanding our basic research capabilities for target identification, vector design and
candidate therapeutic screening.
Expand our manufacturing capabilities and create a pilot manufacturing group. We will seek to decrease our
dependence on contract manufacturers by acquiring capital equipment and staffing a facility capable of process
development and non-cGMP manufacturing at a scale of up to 100 liter, or 100 L, batches, for indications beyond orphan
ophthalmology. Such a facility would enable us to complete process development at a final manufacturing scale
appropriate for many indications prior to transfer of manufacturing to a cGMP facility, as well as allowing us the
flexibility to produce all non-cGMP batches for early research work and GLP toxicology and biodistribution studies,
giving us better control of our future manufacturing requirements. We believe these investments will facilitate the more
4
rapid advancement of our products through regulatory approval and enhance the therapeutic and commercial potential of
our gene therapy platform.
Pursue orphan indications with high unmet medical need and greater probability of clinical, regulatory and
commercial success. We will continue to focus on diseases for which the underlying genetic defect is well characterized
and can be addressed by correcting or inserting a single gene, for which predictive animal models exist and for which
clinical endpoints are objective and have been validated by the FDA. We believe that focusing on these types of
indications will enable us to obtain data more rapidly and accelerate the process of clinical study and regulatory approval
of our products. Given the relatively low prevalence of orphan diseases and the strong key opinion leader communities
and patient advocacy groups around them, we also believe we will be able to serve these markets independently with a
small, targeted commercial infrastructure.
Evaluate opportunities to leverage our gene therapy platform to address indications outside of ophthalmology. We
intend to develop and partner selectively to expand the scope of our pipeline and the utilization of our gene therapy
platform. The adaptability of our platform also presents an opportunity for us to selectively form collaborative alliances to
expand our capabilities and product offerings into a range of genetically defined diseases and potentially to accelerate the
development and commercialization of gene therapy products more broadly. We recently completed a partnership with
Biogen that provides us with significant resources to expand our product development activities as well as access to
significant development and commercialization expertise.
Gene therapy background
Genes enable production of proteins that perform a vast array of functions within all living organisms. Many diseases have a
genetic aspect whereby a mutated gene is passed down from generation to generation. Mutated genes can cause production of
abnormal proteins, which can cause disease.
Gene therapy involves the introduction of a functional copy of the gene into a patient’s own cells using a delivery system most
commonly based on a viral vector to treat the genetic defect. Gene therapy has the potential to change the way these patients are
treated, by correcting the underlying genetic defect that is the cause of their disease rather than offering treatments that only address
symptoms. We believe that by correcting the underlying genetic defect, gene therapy can provide transformative disease modifying
effects—potentially with life-long clinical benefits based on a one-time therapeutic administration.
The promise of gene therapy has evolved over the last decade, with a growing body of clinical data that we believe has provided
evidence of efficacy and safety in a variety of disease areas, improvements in vector design and manufacturing processes by us and
others and the establishment of regulatory guidelines for the development and approval of gene therapy products. These advances
have led to increased investment from the biopharmaceutical industry and supported the emergence of gene therapy as an important
therapeutic modality for patients with significant unmet medical needs.
Our gene therapy platform
Our approach to gene therapy product development is conceptually straightforward. We design an AAV vector that will carry
the functional gene necessary to express the desired protein, produce the vector using our proprietary production methods, and then
deliver the product directly to the appropriate cells in a patient by a suitable physical delivery method. Although the concept of gene
transfer is simple, the process of developing and manufacturing AAV vectors capable of delivering the genetic material safely into a
patient’s own cells is highly technical and demands significant expertise, experience and know-how.
Our gene therapy platform is built on our core competencies in three key areas:
vector selection and design;
vector manufacturing; and
vector delivery.
5
Our vector selection and design process
AAV vectors. The success of a gene therapy platform is highly dependent on the vector selected. Our platform is based on the
use of a modified version of the non-replicating adeno-associated virus to deliver the correct DNA directly to the nucleus of the cells
affected by the disease. We believe that AAV vectors are particularly well suited for treating our target diseases and have advantages
over other viral vectors, such as adenovirus, herpes virus and lentivirus. These advantages include:
Simplicity —AAV is a small, simple non-enveloped virus with only two native genes. This makes the virus
straightforward to work with from a vector engineering standpoint.
Stability —AAV is extremely stable: it is resistant to degradation by shear, solvents and enzymes, facilitating purification
and final formulation. AAV stability could also enable development of a freeze-dried formulation, should this become
necessary for larger markets where shipping and distribution of the current frozen formulation would be challenging.
Sustained expression —Unlike vectors based on other viruses, our AAV vectors are capable of inserting the functional
gene into the patient’s cells as an extra-chromosomal episome, which is a stable, circular form of DNA in the nucleus of
cells. Inserting the functional gene as an episome supports long-term production of the protein, leading to sustained
therapeutic effect, without altering the patient’s existing DNA. Sustained expression is a powerful advantage of using
AAV as a vector: a one-time therapeutic administration of a functional gene into a cell can potentially support protein
production for the life of the cell, which, in the cell types we are currently focused on treating, may approximate the
duration of the patient’s lifetime.
Safety —We believe AAV vectors are the safest for use in human gene therapy. In contrast, clinical trials using other
vectors, such as lentivirus, adenovirus and herpes virus, have reported serious adverse events. The safety advantages of
AAV vectors include the following:
AAV elicits a low immune response, reducing the risk of adverse inflammatory reactions. In contrast, trials with
adenoviral vectors have reported severe inflammatory reactions.
AAV vectors, while they provide sustained expression, do not alter the patient’s existing DNA, and safety is
therefore improved over vectors that alter the patient’s DNA. Trials using early versions of lentiviral vectors, which
insert genes directly into, and thereby alter, the patients’ DNA, resulted in several well-publicized adverse events,
including reported cases of leukemia.
AAV has never been linked to human disease, unlike most other viruses used as gene delivery vectors such as
adenovirus, herpes virus and lentivirus.
AAV vectors have no viral genes remaining, eliminating the possibility that any viral genes will cause an adverse
event.
AAV vectors have been used in more than 100 human clinical trials, by us and others, with no serious adverse events
traced to the use of AAV as the gene delivery vector. In our direct experience with human clinical trials for LCA2, AAT
deficiency and wet AMD, over 100 patients were treated using AAV vectors, with no serious adverse events attributed to
the vector. In a Phase 2 trial of our AAT deficiency product candidate, patients were treated with doses more than 1,000-
fold higher than those planned for use in any of our ophthalmic indications, with no serious adverse events reported.
Carrying capacity —AAV vectors have the capacity to carry therapeutic gene sequences up to 4,000 base pairs in length
into a patient’s cell. As more than 90% of human genes have coding sequences less than 3,000 base pairs in length, we
expect to be able to pursue a wide variety of indications with our AAV vectors.
Vector design. After the selection of the vector type, there are many other critical factors to be considered when designing a
gene therapy product. These include selecting the appropriate:
therapeutic gene,
promoter and related gene regulatory elements,
AAV sequences needed to signal replication and packaging, and
AAV capsid (the protein shell) in which these elements are packaged.
6
The first step in vector design is to identify the therapeutic protein that we want the patient’s own cells to produce, and many
times optimize the gene for efficient therapeutic protein expression in patient’s own cells, and then insert that efficient gene into an
AAV vector. Production of the protein requires a promoter, which is a genetic element to drive expression. Certain promoters function
well only in certain cell types, whereas other promoters function well in almost any cell type. We make our selection by comparing
different promoters in the specific type of cells that are affected in each disease target, ideally in an animal whose physiology is close
to that of humans, to find the promoter that best enables production of therapeutic levels of protein in that cell type.
After the promoter and gene of interest are selected, we insert these elements between AAV viral sequences that are needed for
replication and packaging of the vector into the AAV capsid. There are hundreds of variations of AAV capsids with different
efficiencies in their ability to bind to and enter varying cell types. We select the capsid for a specific product candidate after
comparing different capsids in the type of cells that are affected by the targeted disease.
One of our key capabilities is our depth of understanding of the complex interplay between the clinical disease, the cells in the
patient’s body that need treatment, the selection of a capsid and a promoter, the design of the gene construct and the physical
administration method. We have spent years conducting research on the best combinations of these elements with the aim of
developing safe and effective gene therapy treatments.
Vector manufacturing: our H.A.V.E. method
We have developed a proprietary, high-yield vector manufacturing process using scalable technologies for herpes-assisted
vector expansion, which we refer to as our H.A.V.E. manufacturing method. While the H.A.V.E. manufacturing method uses the
herpes virus as a helper in the first step of a four-step AAV vector manufacturing process, there is no herpes virus in the final product.
Our H.A.V.E. manufacturing method addresses problems of low productivity and low efficacy that have historically plagued efforts to
manufacture AAV vectors and enables us to produce vectors with improved potency, efficiency and safety over processes previously
used by us and others. It also enables us to produce a more purified and concentrated end product, as evidenced by an approximately
25- to 30-fold reduction in non-infectious viral contaminants as compared to vectors used in previous clinical trials.
Our manufacturing process has been reviewed by both the FDA and the European Medicines Agency, or EMA, and has been
authorized for production of product candidates for use in clinical trials in the United States and Europe. Our manufacturing process is
also reproducible and scalable. It has been transferred successfully to Genzyme and to SAFC Pharma, our contract manufacturing
organization, where it is used in manufacturing clinical materials pursuant to the FDA’s current good manufacturing practices, or
GMP, requirements.
We and SAFC Pharma have successfully produced the necessary material for the clinical trials we have conducted to date, and
have more than enough manufacturing capacity to meet the requirements of our planned future trials. We are currently investing in the
development of mid- to large-scale manufacturing processes with a view towards supporting our product candidates, if approved, at
commercial scale. We are developing a pilot manufacturing group to decrease our dependence on contract manufacturers by securing
capital equipment and staffing a facility capable of process development and non-cGMP manufacturing at up to 200 L scale.
We hold or have licensed 26 issued and 6 pending patents covering our manufacturing technology. We believe that our core
competency and intellectual property estate in vector manufacturing differentiate us competitively and provide a key element of our
gene therapy platform.
7
Vector delivery
Our gene therapy platform allows for vector delivery by a variety of methods, and we select the method that is most beneficial
for the disease we are targeting. The method used depends on the type of cells we are targeting for treatment.
In ophthalmology, the product candidate can best be delivered to cells in the eye by intravitreal or subretinal injection.
Intravitreal injection into the vitreous humor, which is the clear gel that fills the space between the lens and the retina of the eye,
is best for delivering the product candidate to the retinal neurons in the inner retina (the portion of the retina closest to the lens), to
photoreceptors located in the fovea (the very center of the macula, which is the central part of the retina that is required for fine visual
acuity), and other cells in the lateral portions of the eye. This routine procedure can be carried out in an ophthalmologist’s office.
Subretinal injection between the photoreceptors in the outer retina and the retinal pigment epithelium just below the retina are
best for delivering the product candidate to the outer retina, farthest from the lens, where the AAV vector can readily enter
photoreceptor cells and retinal pigment epithelium cells. This is a short, outpatient surgical procedure that is frequently performed by
retinal surgeons.
We expect to use intravitreal injection as the method of delivery for our XLRS product candidate, and we plan to evaluate both
subretinal injection and intravitreal injection as methods of delivery for our ACHM and XLRP product candidates.
For other indications, such as the orphan lung disease AAT deficiency, where secretion of a therapeutic protein into the
bloodstream is the goal, we plan to administer the product candidate to muscle cells. There are large numbers of muscle cells in the
body, providing the ability to produce a large amount of protein for systemic circulation. This can be accomplished by several
methods, including:
intramuscular injection , in which the product candidate is directly injected into muscle cells, and
vascular delivery, in which the product candidate is administered to the muscle cells of an entire leg, using infusion
methods similar to those currently employed in cardiac catheterization, oncology and anesthesiology. In preclinical animal
studies of our product candidate for AAT deficiency, using a vascular delivery method was shown to achieve much higher
serum levels and lower immune responses compared to direct intramuscular injection.
8
These methods of administration of our product candidates are well established for the safe and effective delivery of other drugs
and protein products. AAV vectors can be delivered by these and other methods to a wide array of other cells, such as heart muscle
cells in certain cardiac diseases or directly into the brain in certain neurologic diseases.
Our approach can potentially arrest, correct or treat a disease with a one-time therapeutic administration, as many of the cells to
which the product candidate is delivered will survive for the life of the patient and treatment of those cells thereby has the potential to
deliver life-long effects. For example, cells in the retina, important in XLRS and ACHM, mature shortly after birth and in the absence
of disease exist unchanged for the life of the patient. Once treated with our gene therapy products, these cells have the potential to
express the therapeutic protein for the remaining life of the cell. This approach potentially provides significant value to patients,
families, providers and payors.
Our product programs
Our lead programs address XLRS, ACHM, and XLRP, which are orphan diseases of the eye that are caused by mutations in
single genes, significantly affect visual function starting at birth and currently lack effective medical treatments.
We initially developed our gene therapy platform and obtained clinical evidence of its safety and efficacy in proof-of-concept
programs involving two other eye diseases: LCA2 and wet AMD. We obtained clinical evidence of safety and tolerability with both
programs as well as encouraging signs of biologic activity. We chose to not continue the development of the LCA2 product for a
number of reasons but most importantly because we believed the disease characteristics and market opportunity for our current lead
programs were more attractive. In the case of wet AMD, our partnership with Genzyme was terminated and we now have freedom to
operate and are pursuing product development independently.
We are also developing a product candidate for treatment of the inherited orphan lung disease AAT deficiency for which we
have conducted preclinical proof-of-concept studies and Phase 1 and Phase 2 clinical trials. We believe our AAT deficiency program
provides proof of concept for the use of our gene therapy platform in indications outside our focus area of orphan ophthalmology.
Our lead programs
X-linked retinoschisis
XLRS is an inherited retinal disease caused by mutations in the RS1 gene, which is located on the X chromosome and encodes
the retinoschisin, or RS1, protein. Retinoschisin is expressed and secreted primarily from photoreceptor cells and binds strongly and
specifically to the surface of photoreceptor and bipolar cells in the retina. Mutated forms of retinoschisin are unable to bind properly,
resulting in schisis, or splitting of the nerve fiber layers of the retina, primarily in the macula. The disease begins early in childhood,
and affected boys typically have best-corrected visual acuity of 20/60 to 20/120 at initial diagnosis. Complications such as retinal
hemorrhage or retinal detachment occur in up to 40% of patients, especially in older patients. According to Molecular Genetics of
Inherited Eye Diseases (1988), the incidence rate for XLRS is between one in 5,000 and one in 20,000 males. Using an incidence rate
of 1 in 11,500 and assuming half the population is male, we estimate that there are about 13,000 persons in the United States and
about 22,000 persons in Europe with XLRS, or 35,000 persons in the United States and Europe combined.
The diagnosis of XLRS is made based on clinical findings and results of imaging studies and ERG. Clinical findings include
reduced visual acuity and a characteristic spoke-wheel appearance of the macula when viewed by an ophthalmoscope, which is the
instrument commonly used by ophthalmologists and optometrists to view the retina. Images obtained by optical coherence
tomography, or OCT, a method of viewing layers of the eye somewhat like a sonogram, show spaces between the layers of the retina
within the macula and fovea in most school-age boys with XLRS. These spaces mean that electrical signals cannot move from the
photoreceptors to other retinal neurons and on to the brain, resulting in poor vision. When this is measured by ERG testing it can be
detected by a markedly abnormal ERG response.
9
The figure below shows an OCT image from a normal individual (top) and from a patient with XLRS (bottom). The black
spaces indicated by the arrows in the bottom portion of the figure demonstrate splitting of the layers of the retina leaving spaces that
interfere with the movement of electrical signals.
There is currently no approved treatment for XLRS. Management of disease manifestations includes low vision aids such as
large-print textbooks, preferential seating in the front of the classroom and use of handouts with high contrast. Surgery may be
required to address complications of vitreous hemorrhage or full-thickness retinal detachment. Anecdotal reports suggest that topical
carbonic anhydrase inhibitors may provide some reduction in the degree of schisis detected by OCT and improvement in visual acuity
in some but not all patients, but the absence of controlled clinical trials makes interpretation of these reports difficult. In addition,
treatment with carbonic anhydrase inhibitors does not address the fundamental genetic defect in persons affected by XLRS. Neither
carbonic anhydrase inhibitors nor any other medicinal products have been approved by regulatory agencies for treatment of XLRS.
Our XLRS product candidate
Our gene therapy approach involves using an AAV vector to insert a functional copy of the RS1 gene into the patient’s retinal
cells, thereby inducing those cells to produce the normal retinoschisin protein. Our XLRS product candidate contains the RS1 gene
and a promoter that has been shown to work well in primate retinal cells, and is packaged in an AAV capsid that is able to efficiently
enter cells in the inner layers of the retina after intravitreal injection.
After the vector containing a functional copy of the RS1 gene enters a retinal cell, the gene is processed by normal biochemical
processes into a stable DNA episome in the nucleus of the cell. This stable form of the gene allows production of the normal
retinoschisin protein which is then secreted from the retinal cells and binds to the surfaces of photoreceptor and bipolar cells in the
retina, pulling them together and eliminating any splitting between the layers of the cells. Upon light stimulation of the photoreceptor
cells, the presence of the retinoschisin allows normal transmission of electrical signals from the photoreceptor cells to the bipolar cells
and then to other retinal neurons that transmit the signals to the visual cortex in the brain. Production of normal retinoschisin continues
as long as the episome persists in the cell, which may be for many years or even life-long, thereby providing long-term potential
benefit after a one-time therapeutic administration.
Preclinical proof of concept for our XLRS product candidate
In mouse models of XLRS, our gene therapy approach restores to normal the abnormal ERG characteristic that is present in
XLRS. Mouse models of XLRS have been developed by deactivating, or knocking out, the RS1 gene in mice. These “knockout” mice
have clinical features similar to humans with XLRS, including reduced visual acuity, schisis cavities detected by OCT, and a markedly
abnormal ERG response.
10
The figure below shows staining for retinoschisin (top row) and for nuclei in retinal cells (bottom row) in a normal mouse (left),
a RS1 knockout mouse in the absence of treatment (middle) and a RS1 knockout mouse treated with an AAV-RS1 vector (right). The
knockout mouse retina has no expression of retinoschisin and has splitting and disorganization of the layers of the retina, indicated by
the arrowheads in the middle panel of the nuclear staining. After treatment, RS1 staining is present in a normal fashion and the nuclear
staining shows restoration of the organization of the cell layers in the retina (right).
Based on data from Min et al. Molecular Therapy (2005)
Treatment by injection of an AAV vector expressing either mouse or human RS1 in these knockout mice improved visual
function as measured by increased ERG b-wave responses.
The figure below shows improved ERG responses in RS1 knockout mice at various times after treatment with an AAV-RS1
vector compared to ERG responses in untreated control RS1 knockout mice. The figure shows a progressive decrease in the ERG
response in the untreated mice but a slower decrease and eventual increase in the ERG response in the treated mice.
Based on data from Min et al. Molecular Therapy (2005)
11
We have concluded that intravitreal injection is the preferred route of administration for an AAV-RS1 vector. We therefore
evaluated intravitreal injection of an AAV vector expressing a marker protein packaged in several different AAV capsids in monkeys
and demonstrated that a vector packaged in an engineered capsid was able to target expression to the macula, which is the primary
area in which retinoschisis occurs.
The figure below shows expression of a marker protein (white areas) in the macula, fovea and nerve fibers of a monkey retina
after intravitreal injection of a vector contained in the engineered capsid. We believe that intravitreal injection of a vector containing
the RS1 gene in the same engineered capsid would show expression of retinoschisin in the same areas.
Based on AGTC animal study data
Planned clinical development of our XLRS product candidate
We are currently enrolling patients in a Phase 1/2 clinical trial in which we expect to enroll a total of 27 XLRS patients at 4
clinical sites. The study design is illustrated below:
We are also currently conducting a natural history study in persons affected by XLRS. This study will document the progression
of the disease in the absence of treatment, and its results will provide important information about the best methods for measuring
visual function in these patients and will guide us in the design of subsequent clinical trials in which our product candidate will be
tested for safety and efficacy. The study is being conducted at three clinical sites that specialize in inherited retinal diseases: the Casey
12
Eye Institute in Portland, Oregon, the Retina Foundation of the Southwest in Dallas, Texas, and the Kellogg Eye Center in Ann Arbor,
Michigan.
Completion of the Phase 1/2 clinical study and the natural history study will guide us in finalizing the design of a pivotal Phase
3 clinical trial. In the planned pivotal Phase 3 trial, we would expect to enroll 40 - 75 patients who will be evaluated for changes in
visual function over a 12-month period. If successful, we believe the results of this second trial could support submission of a
Biologics License Application, or BLA, to the FDA in the United States and a Marketing Authorization Application, or MAA, to the
EMA in Europe for our XLRS product candidate.
As a part of our collaboration, Biogen has obtained worldwide commercialization rights for the XLRS program. AGTC will be
responsible for the clinical development program through product approval. Biogen will support the clinical development costs,
subject to certain conditions, following the first-in-human study. We have an option to share development costs and profits after the
initial clinical trial data are available, and an option to co-promote the second of these products (XLRS and XLRP) to be approved in
the United States.
Congenital achromatopsia
ACHM is an inherited retinal disease characterized by the lack of cone photoreceptor function. Cone photoreceptors are
concentrated in the macula and the fovea. ACHM is present from birth and throughout life. Individuals with this condition have no
cone photoreceptor function, markedly reduced visual acuity, photophobia, or light sensitivity, and complete loss of color
discrimination. Their only functioning photoreceptors are rod photoreceptors, which respond to low intensity light conditions and
mediate night vision but cannot achieve fine visual acuity. Best-corrected visual acuity in persons affected by ACHM, even under
subdued light conditions, is usually about 20/200, a level at which people are considered legally blind. They also experience extreme
light sensitivity resulting in even worse visual acuity under normal daylight conditions, or day blindness.
ACHM can be caused by mutations in any of at least five genes that are required for normal cone photoreceptor function. The
most common causes are mutations in the CNGB3 gene (about half of all cases) or CNGA3 gene (about one-fourth of all cases).
These genes encode the CNGB3 and CNGA3 proteins, which combine to form a channel in the photoreceptor membrane that is
required for phototransduction, the process whereby a light signal is converted to an electrical signal that is then transmitted to the
brain. According to Retinal Dystrophies and Degenerations (1988), the incidence rate for ACHM is approximately one in 30,000
people, and we therefore estimate that there are about 10,000 people in the United States and about 17,000 people in Europe with
ACHM. Of these, about half, or a total of 13,500 in the United States and Europe combined, have the form of the disease caused by
mutations in the CNGB3 gene.
There is currently no specific treatment for ACHM. Symptoms are managed by the use of dark lenses to reduce discomfort from
ambient light, and low vision aids such as high-powered magnifiers for reading. Children with ACHM are provided preferential
seating in the front of classrooms to benefit maximally from their magnifying devices.
Our ACHM product candidates
Our gene therapy approach to treatment of ACHM involves using an AAV vector to insert a functional copy of the CNGB3 or
CNGA3 gene into the patient’s own photoreceptor cells. Our first ACHM product candidate contains the CNGB3 gene and a
promoter, the PR1.7 promoter, that has been shown in preclinical studies to drive efficient gene expression in primate cone
photoreceptors and restores cone photoreceptor function in dog and mouse models of achromatopsia. We have identified an AAV
capsid that works well for subretinal delivery and are evaluating additional AAV capsids to identify those that work well for
intravitreal delivery that could be used in follow-on products.
After our ACHM product candidate containing the functional CNGB3 gene enters a photoreceptor cell, the gene is processed by
normal biochemical processes into a stable DNA episome in the nucleus of the cell. The stable form of the gene allows production of
the normal CNGB3 protein, which combines with the normal CNGA3 protein already being produced in the cell, to form a channel in
the photoreceptor membrane that is required for phototransduction. Restoration of phototransduction enables cone photoreceptors to
convert light entering the eye into an electrical signal that is transmitted to other retinal neurons and then to the visual cortex in the
brain. Production of normal CNGB3 protein continues as long as the episome persists in the cell, which may be for many years or
even life-long, thereby providing long-term potential benefit after a one-time therapeutic administration.
There are several other genes in which mutations are known to cause ACHM, with signs and symptoms that are the same as in
ACHM caused by CNGB3 mutations. AAV vectors expressing these genes would be additional potential product candidates for
treatment of ACHM caused by mutations in these genes, and we believe they would have the potential for rapid regulatory approval, if
our product candidate for ACHM caused by CNGB3 mutations were already approved. Mutations in the CNGA3 gene are responsible
13
for about 25% of ACHM cases in the US and Europe but are responsible for almost all cases in patients from the Middle East. Proof-
of-concept efficacy after subretinal injection of AAV vectors expressing CNGA3 has also been demonstrated in mouse and sheep
models of CNGA3-related ACHM.
Preclinical proof of concept for our ACHM product candidates
In mouse and dog models of ACHM, our product candidate was able to restore photoreceptor function, improve visual acuity
and mitigate photophobia and day blindness.
ACHM occurs in two breeds of dogs, Alaskan malamutes and German shorthaired pointers, due to mutations in the CNGB3
gene that either produce an abnormal protein or completely prevent production of the protein. Both breeds have clinical characteristics
similar to human ACHM patients, with day blindness and absence of retinal cone function as measured by ERG. Treatment by
subretinal injection of an AAV vector expressing human CNGB3 restored cone function in dogs with either mutation. Cone-specific
ERG responses were undetectable in these dogs before treatment but were clearly detected after treatment. Day blindness was
demonstrated before treatment by testing the ability of the dogs to navigate a maze under progressively brighter conditions. Before
treatment, it took the ACHM dogs progressively longer to navigate the maze as the ambient light increased from dim light to normal
room lighting and even longer with normal outdoor daytime lighting. After treatment, the day blindness was substantially eliminated,
and the treated ACHM dogs were able to navigate the maze under bright light conditions at almost the same speed as normal dogs.
The figure below shows the average time taken to navigate a maze as the ambient light intensity was increased for three groups
of dogs: normal dogs, dogs with ACHM that were untreated and dogs with ACHM that were treated with our ACHM product
candidate. The figure shows that under low light conductions (0.2 lux, equivalent to the light conditions on a moonlit night), when
vision is normally mediated only by rod photoreceptors, all three groups navigated the maze rapidly. As the light intensity was
progressively increased (to 646 lux, equivalent to the light conditions in a business office), and vision became mediated by cone
photoreceptors, the untreated ACHM dogs took progressively longer to navigate the maze, as they bumped into walls in the maze and
had to advance by trial and error. In contrast, as the light intensity was progressively increased, the time taken to navigate the maze did
not change for normal dogs and increased only slightly for the treated ACHM dogs.
Based on Komaromy et al. Human Molecular Genetics (2010)
Untreated ACHM dogs also demonstrated photophobia and day blindness when outdoors in daylight, which severely limited
their ability to interact with people and objects in their environment. After treatment there was a dramatic improvement in this
important clinical manifestation of ACHM. The restored function persisted for more than 2.5 years (the longest duration tested).
In addition, a mouse model of ACHM was developed by knocking out the CNGB3 gene in mice. These knockout mice have
markedly impaired cone photoreceptor function, as measured by ERG and visual acuity testing. Treatment by subretinal injection of
an AAV vector expressing human CNGB3 in the knockout mice improved cone-specific ERG responses to nearly normal levels and
improved visual acuity, as measured by their ability to follow a rotating pattern of vertical stripes of varying thickness.
14
In conjunction with scientists based in Israel, we have initiated a preclinical study involving a product candidate for CNGA3-
related ACHM, which uses the same promoter and capsid used in our CNGB3 product candidate, to evaluate its safety and efficacy in
the sheep model of the disease. We have also initiated an international natural history study in patients with CNGA3-related ACHM.
Planned clinical development of our CNGB3-related ACHM product candidate
We are currently conducting a natural history study in persons affected by ACHM caused by CNGB3 mutations. Results of this
study will provide important information about the best methods for measuring visual function in these patients and will guide us in
the design of subsequent clinical trials in which our product candidate will be tested for safety and efficacy. This study is being
conducted at multiple clinical sites that specialize in inherited retinal diseases.
15
We are in the final stages of preparing the IND for our ACHM CNGB3 product candidate. Once the IND has cleared the FDA,
we anticipate enrolling18 achromatopsia CNGB3 patients in a Phase1/2 clinical trial. The anticipated study design is illustrated
below:
Completion of the Phase 1/2 clinical study and the natural history study will guide us in finalizing the design of a pivotal Phase
3 clinical trial. In the planned pivotal Phase 3 trial, we expect that between 40 and 75 patients will be enrolled and evaluated for
changes in visual function over a 12-month period following treatment. If successful, we believe the results of this pivotal Phase 3 trial
could support our submission of a BLA to the FDA and of an MAA to the EMA for our ACHM product candidate.
X-linked retinitis pigmentosa
Retinitis pigmentosa is an inherited retinal dystrophy with progressive loss of vision. It is commonly first observed in boys and
young men who notice problems with vision under low light conditions, or night blindness, followed by a restriction of peripheral
visual fields, or tunnel vision, leading to poor central vision and eventual total blindness.
The incidence rate for retinitis pigmentosa is about one in 4,000 people, according to Retinitis Pigmentosa (1988), and we
estimate that there are about 75,000 people in the United States and 125,000 people in Europe with retinitis pigmentosa, or 200,000
people in the United States and Europe combined. According to a paper by Dr. Marianne Haim published in Acta Ophthalmologica
(1992), about 10% of cases of retinitis pigmentosa are caused by mutations in a gene on the X chromosome and are referred to as X-
linked retinitis pigmentosa, or XLRP, from which we therefore estimate that there are about 20,000 persons with XLRP in the United
States and Europe combined.
A preclinical study in a dog model of XLRP caused by mutations in the RPGR gene demonstrated a delay in the rate of disease
progression in eyes that received a subretinal injection of an AAV vector expressing RPGR. We have inserted a stable form of the
RPGR cDNA into an HSV helper to produce our XLRP product candidate and are currently conducting preclinical studies to further
evaluate the ability of this product candidate to delay disease progression in animal models of XLRP. If these studies are successful,
we will conduct additional preclinical studies required for submission of an IND to the FDA. These studies will include single-dose
toxicology studies in animals that will evaluate the safety and distribution within the animals after our XLRP product candidate is
delivered by both subretinal and intravitreal injection.
As a part of our collaboration, Biogen obtains worldwide commercialization rights for the XLRP program. The Company will
lead the clinical development program through the completion of first-in-human trials. Biogen will support the clinical development
costs, subject to certain conditions, following the IND-enabling studies. The Company has an option to share development costs and
profits after the initial clinical trial data are available, and an option to co-promote the second of these products (XLRS and XLRP) to
be approved in the United States.
16
Other opportunities in ophthalmology
We believe our current gene therapy platform will enable us to develop and test new AAV vectors that carry different gene
sequences for other inherited diseases in ophthalmology, reducing the need for early research work. In this way, we anticipate being
able to move products rapidly through preclinical studies and into clinical development. We also believe that there are large market
ophthalmology diseases where AAV vectors may provide benefit, such as wet AMD.
Wet AMD
Age-related macular degeneration, or AMD, is a retinal disease that affects older adults and results in a loss of vision in the
center of the visual field (the macula). It is a major cause of blindness and visual impairment and occurs in neovascular (“wet”) or
nonneovascular (“dry”) forms. In the wet form, abnormal growth of blood vessels in the retina is stimulated by a protein called
vascular endothelial growth factor, or VEGF. The abnormal blood vessel growth, or neovascularization, causes vision loss due to
blood and protein leakage in the macula. A paper by Friedman et al. published in Archives of Ophthalmology (2004) estimated the
total number of persons with wet AMD in the United States to be 1.2 million, from which we estimate there are about 3.2 million
persons with wet AMD in the United States and Europe combined.
Wet AMD is currently treated with intravitreal injections of anti-VEGF agents delivered every one to two months, for an
indefinite period. While these VEGF-targeted therapies have proven efficacious for many patients, there is an urgent medical need to
improve on the approximately 35% success rate for existing therapies by targeting other critical factors, and to reduce the burdensome
injection frequency for patients and physicians.
Based on our proof-of-concept studies, we believe that gene therapy offers a potential long-term solution to treat wet AMD with
a single injection. Additionally, as in the case of “cocktail” treatment paradigms in oncology, there is a strong rationale for
combination therapy to become the standard of care in wet AMD. For instance, we are aware that others are conducting Phase 3 trials
of an anti-platelet-derived growth factor, or PDGF, agent in combination with anti-VEGF agents for wet AMD. We believe that, while
the predictability of targeting VEGF itself would mitigate development risk, the most compelling gene therapy approach would offer
not only sustained expression but also pathway synergy with existing anti-VEGF options. We have defined our preferred target profile
and are proceeding with a comprehensive review of possible targets.
The development pathway for wet AMD therapies has been well-established. Preclinical CROs offer predictive animal models
that reproduce the neovascularization typical of wet AMD in humans and yield results within a few months. In the clinic, physicians
can readily detect therapeutic effects by measuring visual function with an eye chart and anatomical biomarkers using widely available
imaging devices. We intend to test several lead targets head-to-head in animal models. If sufficient rationale exists for more than one
target, we will investigate deploying one viral vector to address multiple targets. Given our experience gained from our prior
partnership with Genzyme, our already-established manufacturing infrastructure and our planned regulatory path, we expect to be able
to file an IND for a wet AMD product candidate efficiently.
Other autosomal recessive retinal diseases
It is estimated that approximately 220 genes causing inherited retinal disease have been identified, of which 146 are autosomal
recessive and therefore most amenable to treatment by gene replacement therapy. Among the 42 most common autosomal recessive
forms of retinitis pigmentosa, LCA and cone or cone-rod dystrophy, 38 have gene coding regions of less than 3,760 nucleotides and
can therefore be readily accommodated within our AAV vectors. We are continuing to evaluate indications having these
characteristics to select those most appropriate for addition to our longer-term product development pipeline.
Manufacturing
Until recently, there has been a lack of manufacturing infrastructure to enable the production of gene therapies in a reliable and
reproducible manner at a commercially viable scale. The historical challenges for gene therapy manufacturing relate to the difficulty
of developing constructs that provide the necessary helper functions, and in having systems that provide adequate yield, scalability and
potency. We have made significant investments in developing improved manufacturing processes, which include the following:
We have developed proprietary AAV vector manufacturing processes and techniques that produce a more purified and
concentrated product candidate, as evidenced by the approximately 25- to 30-fold reduction in non-infectious viral
contaminants as compared to vectors used in many previous clinical trials.
We do not need a specially cloned and isolated cell line for each of our disease targets; we instead use specially
engineered replication-incompetent herpes simplex helpers, or HSV helpers, which are stable and straightforward to
clone.
17
We have developed over 30 assays to accurately characterize our process and the HSV and AAV vectors we produce.
We have developed a purification system applicable to multiple AAV capsids.
We are investing in the development of mid- to large-scale manufacturing processes to enable the manufacture of our
product candidates at commercial scale.
We believe these improvements and our continued investment in our manufacturing platform will enable us to develop best-in-
class, next generation gene therapy products.
Our viral vector production platform for AAV-based gene therapeutics, which we call the herpes-assisted vector expansion, or
H.A.V.E. method, offers significant benefits in comparison with the methods used by others to manufacture AAV vectors, as
summarized in the following table.
AAV production method
Transfection ......................................................
Baculovirus .......................................................
Adenovirus .......................................................
Our H.A.V.E. method .....................................
Straightforward
cloning
Yes
No
No
Yes
High efficiency
No
No
Yes
Yes
High yield
No
Yes
Yes
Yes
Scalable
No
Yes
Yes
Yes
The four key steps involved in our proprietary H.A.V.E. manufacturing method are as follows:
First, the therapeutic gene and the appropriate AAV capsid genes are inserted into individual HSV helpers, and these
helpers are individually grown in a complementing cell line called V27. The complementing cell line is required to
provide critical functions that allow the replication-incompetent HSV helpers to grow; the same cell line is used to
produce HSV helpers for all disease targets. This step occurs in disposable culture vessels of increasing size, up to and
including disposable stirred tank bioreactors. The HSV helpers are harvested, minimally processed and concentrated to
prepare them for use in producing our AAV vectors. These HSV helpers can be stored frozen for years before use.
Next, the two HSV helpers are used together to infect a cell line called sBHK, allowing for packaging of the therapeutic
gene into the AAV capsid and to produce our AAV vectors. The sBHK cell line does not provide the critical functions that
would allow for growth of the HSV helpers, which provides an added layer of safety. The same sBHK cell line is used to
produce AAV vectors for all disease targets. This step occurs in disposable culture vessels of increasing size depending on
the amount of AAV vector that is required. The AAV vector is recovered by using a detergent solution to break open the
sBHK cells and release the AAV vectors. This step also destroys any residual HSV helpers that were used to infect the
sBHK cells.
The third step is to purify the harvested AAV vector using two chromatography columns. The exact method used to
column-purify our AAV vectors varies depending on the AAV capsid used in the product candidate; we have developed
purification methods for multiple AAV capsids. We have shown in formal clearance studies that the combination of
detergent treatment and two chromatography columns can remove up to 1014 (100 trillion) units of HSV. This step also
helps to eliminate any remaining parts, such as proteins or DNA, of the HSV helpers and sBHK production cells.
The final step is to formulate, filter and fill the AAV vector in appropriate containers for use in animal or human studies.
This filled AAV vector drug product can be stored frozen for years before use.
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H.A.V.E. Production of our AAV Vectors for Gene Therapy
The H.A.V.E. method is inherently flexible, allowing the manufacture of a wide range of AAV vectors without the need to
modify the manufacturing steps used to produce the HSV helpers or AAV vectors. We have already demonstrated our manufacturing
knowledge through multiple successful production batches of both HSV helpers and AAV vectors at SAFC Pharma, our contract
manufacturing organization, under current good manufacturing practices, or GMP.
Research is already underway to meet our future manufacturing needs. Projects include scale-up to larger batch production for
use in our AAT deficiency program, continued modifications of the purification step to accommodate new AAV capsids, complete
removal of animal-derived products from the V27 cell growth step, and formulations that allow for higher AAV vector concentrations.
We are also in the process of acquiring capital equipment and staffing a facility capable of process development and non-cGMP
manufacturing at 100 L scale. Such a facility would enable us to complete all process development at final manufacturing scale
appropriate for many indications prior to transfer of manufacturing to a cGMP facility, giving us better control of our future
manufacturing requirements.
Strategic collaborations and acquisitions
We have formed strategic alliances where both parties contribute expertise to enable the discovery and development of potential
gene therapy product candidates. To access the substantial funding and other resources required to develop and commercialize gene
therapy products, we intend to seek other opportunities to form strategic alliances with collaborators who can augment our industry-
leading gene therapy expertise.
On July 1, 2015, we entered into a broad collaboration and license agreement with Biogen to develop gene-based therapies for
multiple ophthalmic diseases. Biogen has made an upfront payment to us in the amount of $124.0 million, which includes a $30.0
million equity investment and certain prepaid research and development expenditures. Biogen will be granted a license to the XLRS
and XLRP programs and the option to license discovery programs for two additional ophthalmic indications and one non-ophthalmic
indication at the time of clinical candidate selection. Under the collaboration, we are eligible to receive upfront and milestone
payments exceeding $1 billion. This includes up to $472.5 million collectively for the two lead programs, which also will carry
royalties in the high single digit to mid-teen percentages of annual net sales. In addition, Biogen may make payments up to $592.5
million across the discovery programs, along with royalties in the mid-single digits to low teen percentages of annual net sales.
Biogen will also receive an exclusive license to use our proprietary manufacturing technology platform to make AAV vectors
for up to six genes, three of which are at our discretion, in exchange for payment of milestones and royalties.
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We have also entered into an agreement with SAFC Pharma, which also is our current contract manufacturing organization, for
cGMP manufacture of clinical grade material for third parties. This arrangement allows us to approach other gene therapy companies
that might benefit from our manufacturing and vector design capabilities. Under such an arrangement, we could potentially license our
manufacturing technology and receive upfront payments, milestones and royalties. SAFC Pharma would do the manufacturing of
commercial grade material.
Our plan to bring in-house a pilot manufacturing facility will further support these efforts. Such a facility will allow us to
manufacture small amounts of non-clinical grade material for other gene therapy companies as they perform their pre-clinical
experiments. It will also enable us to develop additional expertise in viral vector design as we look to forge partnerships and alliances
within the gene therapy space.
We also plan to continue to in-license additional intellectual property to support our current programs, to establish new
development programs and to support our manufacturing technology. Additionally we will seek to partner with both new commercial
gene therapy companies and academic institutions to leverage our expertise in vector design, research, manufacturing and the
regulatory process. The goal of these collaborations would be to forge strategic partnerships around technologies and programs that
would fit with our current development pipeline. In general, we would seek new intellectual property, development programs in rare
diseases, pipeline products where the regulatory pathway is understood, partners with strong scientific, clinical and management
expertise, and programs that have synergy with our current knowledge base and product pipeline that would add to our industry
leadership. We would also be looking at programs where the disease being treated has a large enough patient population that there
would be adequate financial returns for the investment of resources.
We will also evaluate opportunities to add products, technology and talent in areas consistent with our strategy through selective
acquisitions.
Our relationship with the University of Florida
All of our scientific founders spent part of their careers at the University of Florida, or UF, and three are still UF faculty
members. Since our inception we have licensed significant technology from and funded research at multiple labs at UF. Pursuant to
four agreements, we have licensed three U.S. patents and multiple pending applications covering inventions made at UF. UF has
multiple capabilities in genetic cloning, gene therapy manufacturing, animal model development and facilities for both small and large
animal testing, and in certain instances we have benefited from the ability to conduct important research at UF without having to
expand in-house facilities and personnel. We interact frequently with the Powell Gene Therapy Center at UF and have an excellent
working relationship with the UF Office of Technology Licensing.
In May 2013, we and UF were jointly awarded an $8.3 million dollar grant from the NEI to support development of our ACHM
product candidate, with Dr. William Hauswirth, one of our scientific founders and Professor and holder of the Rybaczki-Bullard Chair
in the Department of Ophthalmology at UF, as principal investigator. As a sub-awardee, we expect to receive approximately $3.8
million over four years under this grant.
Our relationships with patient advocacy groups and academic centers
We have long believed that when developing products to treat orphan indications it is important to form strong relationships
with patient advocacy groups, and we have done this successfully with both the Foundation Fighting Blindness, or FFB, and the
Alpha-1 Foundation. Both organizations are well known for their advocacy of patients’ interests in obtaining diagnosis, developing
treatments and providing for reimbursement. Both actively support research into treatment, and we have been awarded three research
grants totaling $1.6 million from the FFB and one grant of $0.3 million from the Alpha-1 Foundation. More importantly, both
organizations have been instrumental in assisting us in forming ties with disease experts, recruiting patients into clinical trials and
helping us to understand the needs, wants and concerns of patients.
We also have formed strong relationships with key academic centers across the United States that have core competencies in
gene therapy, orphan ophthalmology and AAT deficiency. These centers conduct sponsored research, act as advisors and collaborate
with us on grant proposals. Since our inception, we have been awarded grant funding, either independently or with our collaborators.
This funding has provided peer-reviewed scientific validation of our programs and has facilitated critical early stage research for our
leading product candidates.
Intellectual property
We strive to protect and enhance the proprietary technology, inventions, and improvements that are commercially important to
the development of our business, including seeking, maintaining and defending patent rights, whether developed internally or licensed
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from third parties. We also rely on trade secrets relating to our proprietary technology platform and on know-how, continuing
technological innovation and in-licensing opportunities to develop, strengthen and maintain our proprietary position in the field of
gene therapy that may be important for the development of our business. We additionally rely on regulatory protection afforded
through orphan drug designations, data exclusivity, market exclusivity, and patent term extensions where available.
Our commercial success may depend in part on our ability to obtain and maintain patent and other proprietary protection for
commercially important technology, inventions and know-how related to our business; defend and enforce our patents; preserve the
confidentiality of our trade secrets; and operate without infringing the valid enforceable patents and proprietary rights of third parties.
Our ability to stop third parties from making, using, selling, offering to sell or importing our products may depend on the extent to
which we have rights under valid and enforceable patents or trade secrets that cover these activities. With respect to both licensed and
company-owned intellectual property, we cannot be sure that patents will be granted with respect to any of our pending patent
applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or
any patents that may be granted to us in the future will be commercially useful in protecting our commercial products and methods of
manufacturing the same.
We have developed or in-licensed numerous patents and patent applications and possess substantial know-how and trade secrets
relating to the development and commercialization of gene therapy products. Our proprietary intellectual property, including patent
and non-patent intellectual property, is generally directed to, for example, certain genes, methods of transferring genetic material into
cells, processes to manufacture our AAV-based product candidates and other proprietary technologies and processes related to our
lead product candidates.
As of August 24, 2015, our patent portfolio included approximately 56 patents and patent applications that we own and
approximately 64 patents and patent applications that we have licensed. More specifically, we own five U.S. patents, six pending U.S.
applications, 32 foreign patents and 13 foreign patent applications. We have licensed 22 U.S. patents, four pending U.S. applications,
35 foreign patents and three pending foreign patent applications. Of the patents and patent applications that we own or license, 32
cover methods to manufacture AAV vectors, the longest lived and most significant of which is expected to expire in 2025. Ten of the
patent applications that we own are directed to small cone promoters and uses thereof. A patent issuing from this group could have an
expiration date in 2034.
Our objective is to continue to expand our portfolio of patents and patent applications in order to protect our gene therapy
product candidates and AAV manufacturing process. Our owned and licensed patent portfolio includes patents and patent applications
directed to our AAT deficiency, XLRS and ACHM programs, as well as our foundational AAV platform. See also “—License
agreements.”
In addition to the above, we have established expertise and development capabilities focused in the areas of preclinical research
and development, manufacturing and manufacturing process scale-up, quality control, quality assurance, regulatory affairs and clinical
trial design and implementation. We believe that our focus and expertise will help us develop products based on our proprietary
intellectual property and to expand our intellectual property.
The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most
countries in which we file, the patent term is 20 years from the date of filing the non-provisional application. In the United States, a
patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the United
States Patent and Trademark Office in granting a patent, or may be shortened if a patent is terminally disclaimed over an earlier-filed
patent. The issued patents that we own and license are expected to expire on various dates from 2016 to 2029.
The term of a patent that covers an FDA-approved drug may also be eligible for patent term extension, which permits patent
term restoration of a U.S. patent as compensation for the patent term lost during the FDA regulatory review process. The Hatch-
Waxman Act permits a patent term extension of up to five years beyond the expiration of the patent. The length of the patent term
extension is related to the length of time the drug is under regulatory review. A patent term extension cannot extend the remaining
term of a patent beyond a total of 14 years from the date of product approval and only one patent per approved drug may be extended.
Moreover, a patent can only be extended once, and thus, if a single patent is applicable to multiple products, it can only be extended
based on one product. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that
covers an approved drug. When possible, depending upon the length of clinical trials and other factors involved in the filing of a new
drug application, or NDA, we expect to apply for patent term extensions for patents covering our product candidates and their methods
of use.
We may rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets can be difficult to
protect. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our
employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and
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trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology
systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be
breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be
independently discovered by competitors. To the extent that our consultants, contractors or collaborators use intellectual property
owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.
License agreements
We have rights to use and exploit multiple issued and pending patents under licenses from other entities. We consider the
commercial terms of these licenses, which provide for modest milestone and royalty payments, and their provisions regarding
diligence, insurance, indemnification and other similar matters, to be reasonable and customary for our industry.
Information about our principal licenses is set forth below.
University of Florida. We currently have five license agreements with the University of Florida Research Foundation, or UFRF,
an affiliate of UF, of which the principal licenses are as follows:
A license from UFRF signed in September 2001 relates to the AAV construct containing the AAT gene and the method to
treat AAT deficiency using this construct. We have an exclusive license in all fields of use.
Under the terms of this license, we made cash and stock-based up-front payments to UFRF and are required to make
payments ranging from the mid-five figures to the low-six figures based upon development, regulatory and commercial
milestones for any products covered by the in-licensed intellectual property. Assuming that we meet each of the specified
development, regulatory and commercial milestones not more than once for each product, which we expect will be the
case, the maximum aggregate milestone payments payable under this license with respect to any individual product that
we commercialize will be $0.3 million. We will also be required to pay a royalty on net sales of products covered by the
in-licensed intellectual property in the mid-single digits. The royalty is subject to reduction for any third-party payments
required to be made, with a minimum floor in the low single digits. We have the right to sublicense our rights under this
agreement, and we will be required to pay a percentage of such license income in the low-double digits. We are required
to make annual maintenance payments in the low four figures under this license, which payments are creditable against
royalty payments on a year-by-year basis.
This license will terminate upon the expiration of all of the patents subject to the license. Additionally, UFRF may
terminate this license upon certain breaches by us of the terms of the license and we may terminate the license at any time
by submitting written notice to UFRF.
The longest-lived patent covered by this license is expected to expire in 2019.
A joint license from UFRF and Johns Hopkins University, or JHU, signed in October 2003 relates to a particular HSV
construct and various compositions thereof. We have an exclusive license in all fields of use.
Under the terms of this license, we made cash and stock-based up-front payments to UFRF and JHU and are required to
make payments ranging from the mid-five figures to the low-six figures based upon development, regulatory and
commercial milestones for any products covered by the in-licensed intellectual property. Assuming that we meet each of
the specified development, regulatory and commercial milestones not more than once for each product, which we expect
will be the case, the maximum aggregate milestone payments payable under this license with respect to any individual
product that we commercialize will be $0.5 million. We will also be required to pay a royalty on net sales of products
covered by the in-licensed intellectual property in the low-single digits. We have the right to sublicense our rights under
this agreement, and we will be required to pay a percentage of such license income in the low-double digits. We are
required to make annual maintenance payments in the low four figures under this license, which payments are creditable
against royalty payments on a year-by-year basis.
This license will terminate upon the earlier to occur of the expiration of all of the patents subject to the license and the
date on which royalty payments, once commenced, cease for more than three calendar quarters. Additionally, UFRF and
JHU may terminate this license upon certain breaches by us of the terms of the license and we may terminate the license at
any time by submitting written notice to UFRF.
The longest-lived patent covered by this license is expected to expire in 2022.
Two licenses from UFRF, signed in September and November 2012, respectively, relate to the use of engineered AAV
capsids. We have an exclusive license to the patents covered by the November 2012 license in the fields of ACHM, XLRS
and XLRP and a semi-exclusive license in all other fields of orphan ophthalmology. We have a non-exclusive license in
all fields of use with respect to the patents covered by the September 2012 license. Currently these patents are most useful
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for ACHM, XLRS and XLRP but could be important for treating a wide variety of diseases as the mutant capsids have
been shown to be able to enter cells more effectively than standard AAV capsids.
Under the terms of these licenses, we made cash up-front payments to UFRF and are required to make payments ranging
from the mid-five figures to the low-six figures based upon development, regulatory and commercial milestones for any
products covered by the in-licensed intellectual property. Assuming that we meet each of the specified development,
regulatory and commercial milestones not more than once for each product, which we expect will be the case, the
maximum aggregate milestone payments payable under these licenses with respect to any individual product that we
commercialize will be $0.6 million. We will also be required to pay a royalty on net sales of products covered by the in-
licensed intellectual property in the low-single digits. We have the right to sublicense our rights under these agreements,
and we will be required to pay a percentage of such license income in the mid-single digits. We are required to make
annual maintenance payments in the mid four figures under these licenses, which payments are creditable against royalty
payments on a year-by-year basis.
These licenses will continue until the expiration of all of the patents subject to the licenses, provided or, if later, a date
specified in the license. Additionally, UFRF may terminate this license upon certain breaches by us of the terms of the
licenses and we may terminate the licenses at any time by submitting written notice to UFRF.
The longest-lived patent covered by these licenses is expected to expire in 2029. There are also patent applications
pending under these licenses.
University of Alabama at Birmingham. A license agreement from the UAB Research Foundation affiliated with The
University of Alabama at Birmingham signed in 2006, relates to one U.S. patent with claims covering the use of HSV helpers to
produce AAV vectors. The patent is expected to expire in 2025. Effective in July 2015, we modified the license from co-exclusive to
exclusive.
Under the terms of this license, we made a cash up-front payment to the UAB Research Foundation, and we will be required to
make payments ranging from the mid-five figures to the low-six figures based upon development and regulatory milestones for any
products covered by the in-licensed intellectual property. Assuming that we meet each of these development and regulatory milestones
not more than once for each product, which we expect will be the case, the maximum aggregate milestone payments payable under
this license with respect to any individual product that we commercialize will be $0.5 million. We will also be required to pay a
royalty on net sales of products covered by the in-licensed intellectual property in the low-single digits. We have the right to
sublicense our rights under this agreement, and we will be required to pay a percentage of such license income in the mid-single digits.
We are required to make annual maintenance payments in the mid-four figures under this license, which payments are creditable
against royalty payments on a year-by-year basis.
This license will terminate upon the expiration of all of the patents subject to the license. Additionally, the UAB Research
Foundation may terminate this license upon certain breaches by us of the terms of the license and we may terminate the license at any
time by submitting written notice to the UAB Research Foundation.
Competition
The biotechnology and pharmaceutical industries are characterized by intense and rapidly changing competition to develop new
technologies and proprietary products, and any product candidates that we successfully develop and commercialize will have to
compete with existing therapies and new therapies that may become available in the future. While we believe that our proprietary
technology estate and scientific expertise in the gene therapy field provide us with competitive advantages, we face potential
competition from many different sources, including larger and better-funded pharmaceutical, specialty pharmaceutical and
biotechnology companies, as well as from academic institutions and governmental agencies and public and private research
institutions that may develop potentially competitive products or technologies. To the extent that we develop product candidates for
indications with larger patient populations, such as wet AMD, we expect to experience particularly intense competition from larger
and better funded pharmaceutical companies. Any product candidate for wet AMD that we may develop will compete with established
drugs such as Genentech’s Lucentis and Avastin and Regeneron’s Eylea and new drug candidates being developed by others,
including Genzyme, that are currently in clinical trials, as well as other treatment modalities such as photodynamic therapy.
Currently there are no approved products for any of our lead orphan ophthalmology indications of XLRS, ACHM and XLRP.
We believe the key competitive factors that will affect the success of our product candidates, if approved, are likely to be their
efficacy, safety, convenience of administration and delivery, price, the level of generic competition and the availability of
reimbursement from government and other third-party payors.
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Many of our potential competitors, alone or with their strategic partners, have substantially greater financial, technical and
human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining
FDA and other regulatory approvals of treatments and the commercialization of those treatments. Mergers and acquisitions in the
biotechnology and pharmaceutical industries may result in even more resources being concentrated among a smaller number of our
competitors. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that
are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we
may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain
approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.
Government regulation
Biological products, including gene therapy products, are subject to regulation under the Federal Food, Drug, and Cosmetic Act,
or FD&C Act, and the Public Health Service Act, or PHS Act, and other federal, state, local and foreign statutes and regulations. Both
the FD&C Act and the PHS Act and their corresponding regulations govern, among other things, the testing, manufacturing, safety,
efficacy, labeling, packaging, storage, record keeping, distribution, reporting, advertising and other promotional practices involving
biological products. Before clinical testing of biological products may begin, we must submit an IND which must go into effect, and
each clinical trial protocol for a gene therapy product candidate is reviewed by the FDA and, in some instances, the NIH, through its
Recombinant DNA Advisory Committee, or RAC. FDA approval of a BLA also must be obtained before marketing of biological
products. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and
foreign statutes and regulations require the expenditure of substantial time and financial resources and we may not be able to obtain
the required regulatory approvals.
Within the FDA, the Center for Biologics Evaluation and Research, or CBER, regulates gene therapy products. The CBER
works closely with the NIH and its RAC, which makes recommendations to the NIH on gene therapy issues and engages in a public
discussion of scientific, safety, ethical and societal issues related to proposed and ongoing gene therapy protocols. The FDA and the
NIH have published guidance documents with respect to the development and submission of gene therapy protocols. The FDA also
has published guidance documents related to, among other things, gene therapy products in general, their preclinical assessment,
observing subjects involved in gene therapy studies for delayed adverse events, potency testing, and chemistry, manufacturing and
control information in gene therapy INDs.
Ethical, social and legal concerns about gene therapy, genetic testing and genetic research have led to the enactment of
legislation such as the Genetic Information Nondiscrimination Act of 2008 and could result in additional regulations restricting or
prohibiting the processes we may use. Federal and state agencies, congressional committees and foreign governments have expressed
interest in further regulating biotechnology. More restrictive regulations or claims that our products are unsafe or pose a hazard could
prevent us from commercializing any products. New government requirements may be established that could delay or prevent
regulatory approval of our product candidates under development. It is impossible to predict whether legislative changes will be
enacted, regulations, policies or guidance changed, or interpretations by agencies or courts changed, or what the impact of such
changes, if any, may be.
Recent developments in regulation of gene therapy
Although the FDA has not yet approved any human gene therapy product for sale, it has provided guidance for the development
of gene therapy products. For example, the FDA has established the Office of Cellular, Tissue and Gene Therapies, or OCTGT, within
CBER, to consolidate the review of gene therapy and related products, and the Cellular, Tissue and Gene Therapies Advisory
Committee, or CTGTAC, to advise CBER on its reviews. In addition, the FDA has issued a growing body of clinical guidelines,
chemical, manufacturing and control, or CMC, guidelines and other guidelines, all of which are intended to facilitate industry’s
development of gene therapy products.
In 2012, the EMA approved a gene therapy product called Glybera, which is the first gene therapy product approved by
regulatory authorities anywhere in the Western world.
United States biological products development process
The process required by the FDA before a biological product candidate may be marketed in the United States generally involves
the following:
completion of nonclinical laboratory tests and animal studies according to good laboratory practices, or GLP,
requirements and applicable requirements for the humane use of laboratory animals or other applicable regulations;
submission to the FDA of an IND, which must become effective before human clinical trials may begin;
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performance of adequate and well-controlled human clinical trials according to the FDA’s regulations commonly referred
to as good clinical practices, or GCP, requirements and any additional requirements for the protection of human research
subjects and their health information, to establish the safety and efficacy of the proposed biological product candidate for
its intended use;
submission to the FDA of a Biologics License Application, or BLA, for marketing approval that includes substantive
evidence of safety, purity, and potency from results of nonclinical testing and clinical trials;
satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the biological product
candidate is produced to assess compliance with GMP requirements, to assure that the facilities, methods and controls are
adequate to preserve the biological product candidate’s identity, strength, quality and purity;
potential FDA audit of the nonclinical and clinical trial sites that generated the data in support of the BLA; and
FDA review and approval, or licensure, of the BLA prior to any commercial marketing or sale of the product candidate in
the United States.
Before testing any biological product candidate, including a gene therapy product candidate, in humans, the product candidate
enters the preclinical testing stage. Preclinical tests, also referred to as nonclinical studies, include laboratory evaluations of product
chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and activity of the product candidate. The
conduct of the preclinical tests must comply with federal regulations and requirements including GLP requirements.
Where a gene therapy trial is conducted at, or sponsored by, institutions receiving NIH funding for recombinant DNA research,
prior to the submission of an IND to the FDA, a protocol and related documentation is submitted to and the trial is registered with the
NIH Office of Biotechnology Activities, or OBA, pursuant to the NIH Guidelines for Research Involving Recombinant or Synthetic
Nucleic Acid Molecules, or NIH Guidelines. Compliance with the NIH Guidelines is mandatory for investigators at institutions
receiving NIH funds for research involving recombinant DNA, however many companies and other institutions not otherwise subject
to the NIH Guidelines voluntarily follow them. The NIH is responsible for convening the RAC, a federal advisory committee, which
discusses protocols that raise novel or particularly important scientific, safety or ethical considerations at one of its quarterly public
meetings. The OBA will notify the FDA of the RAC’s decision regarding the necessity for full public review of a gene therapy
protocol. RAC proceedings and reports are posted to the OBA web site and may be accessed by the public.
The clinical trial sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical
data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. Some preclinical testing
may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the
FDA places the clinical trial on a clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must
resolve any outstanding concerns before the clinical trial can begin. With gene therapy protocols, if the FDA allows the IND to
proceed, and the RAC decides that full public review of the protocol is warranted but did not take place before the IND review is
complete, the FDA will request at the completion of its IND review that sponsors delay initiation of the protocol until after completion
of the RAC review process. The FDA may also impose clinical holds on a biological product candidate at any time before or during
clinical trials due to safety concerns or non-compliance. If the FDA imposes a clinical hold, trials may not recommence without FDA
authorization and then only under terms authorized by the FDA. Accordingly, we cannot be sure that submission of an IND will result
in the FDA allowing clinical trials to begin, or that, once begun, issues will not arise that suspend or terminate such trials.
Clinical trials involve the administration of the biological product candidate to healthy volunteers or patients under the
supervision of qualified investigators, generally physicians not employed by or under the trial sponsor’s control. Clinical trials are
conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and
exclusion criteria, and the parameters to be used to monitor subject safety, including stopping rules that assure a clinical trial will be
stopped if certain adverse events should occur. Each protocol and any amendments to the protocol must be submitted to the FDA as
part of the IND. Clinical trials must be conducted and monitored in accordance with the FDA’s GCP requirements, including the
requirement that all research subjects provide informed consent. Further, each clinical trial must be reviewed and approved by an
independent institutional review board, or IRB, at or servicing each institution at which the clinical trial will be conducted. An IRB is
charged with protecting the welfare and rights of trial participants and considers such items as whether the risks to individuals
participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the form
and content of the informed consent that must be signed by each clinical trial subject or his or her legal representative and must
monitor the clinical trial until completed. Clinical trials also must be reviewed by an institutional biosafety committee, or IBC, a local
institutional committee that reviews and oversees basic and clinical research conducted at that institution. The IBC assesses the safety
of the research and identifies any potential risk to public health or the environment.
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Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:
Phase 1. The biological product candidate is initially introduced into healthy human subjects and tested for safety. In the
case of some product candidates for severe or life-threatening diseases, especially when the product candidate may be too
inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients.
Phase 2. The biological product candidate is evaluated in a limited patient population to identify possible adverse effects
and safety risks, to preliminarily evaluate the efficacy of the product candidate for specific targeted diseases and to
determine dosage tolerance, optimal dosage and dosing schedule.
Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy, potency, and safety in an expanded
patient population at geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall
risk/benefit ratio of the product candidate and provide an adequate basis for product labeling.
Post-approval clinical trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval.
These clinical trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication,
particularly for long-term safety follow-up. The FDA recommends that sponsors observe subjects for potential gene therapy-related
delayed adverse events for a 15-year period, including a minimum of five years of annual examinations followed by 10 years of
annual queries, either in person or by questionnaire, of trial subjects.
During all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical
activities, clinical data, and clinical trial investigators. Annual progress reports detailing the results of the clinical trials must be
submitted to the FDA. Written IND safety reports must be promptly submitted to the FDA, the NIH and the investigators for serious
and unexpected adverse events, any findings from other trials, tests in laboratory animals or in vitro testing that suggest a significant
risk for human subjects, or any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the
protocol or investigator brochure. The sponsor must submit an IND safety report within 15 calendar days after the sponsor determines
that the information qualifies for reporting. The sponsor also must notify the FDA of any unexpected fatal or life-threatening
suspected adverse reaction within seven calendar days after the sponsor’s initial receipt of the information. Phase 1, Phase 2 and Phase
3 clinical trials may not be completed successfully within any specified period, if at all. The FDA or the sponsor or its data safety
monitoring board may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients
are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its
institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the biological product candidate
has been associated with unexpected serious harm to patients.
Human gene therapy products are a new category of therapeutics. Because this is a relatively new and expanding area of novel
therapeutic interventions, there can be no assurance as to the length of the trial period, the number of patients the FDA will require to
be enrolled in the trials in order to establish the safety, efficacy, purity and potency of human gene therapy products, or that the data
generated in these trials will be acceptable to the FDA to support marketing approval. The NIH and the FDA have a publicly
accessible database, the Genetic Modification Clinical Research Information System, which includes information on gene transfer
trials and serves as an electronic tool to facilitate the reporting and analysis of adverse events on these trials. Over the last several
years the FDA has issued helpful guidance on development of gene therapy products and shown a willingness to work closely with
developers, especially with those working in orphan disease areas.
Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional
information about the physical characteristics of the biological product candidate as well as finalize a process for manufacturing the
product candidate in commercial quantities in accordance with GMP requirements. To help reduce the risk of the introduction of
adventitious agents with the use of biological products, the PHS Act emphasizes the importance of manufacturing control for products
whose attributes cannot be precisely defined. The manufacturing process must be capable of consistently producing quality batches of
the product candidate and, among other things, the sponsor must develop methods for testing the identity, strength, quality, potency
and purity of the final biological product. Additionally, appropriate packaging must be selected and tested and stability studies must be
conducted to demonstrate that the biological product candidate does not undergo unacceptable deterioration over its shelf life.
United States review and approval processes
After the completion of clinical trials of a biological product candidate, FDA approval of a BLA must be obtained before
commercial marketing of the biological product candidate. The BLA must include results of product development, laboratory and
animal studies, human trials, information on the manufacture and composition of the product candidate, proposed labeling and other
relevant information. In addition, under the Pediatric Research Equity Act, or PREA, a BLA or supplement to a BLA must contain
data to assess the safety and effectiveness of the biological product candidate for the claimed indications in all relevant pediatric
subpopulations and to support dosing and administration for each pediatric subpopulation for which the product candidate is safe and
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effective. The FDA may grant deferrals for submission of data or full or partial waivers. Unless otherwise required by regulation,
PREA does not apply to any biological product candidate for an indication for which orphan designation has been granted. The testing
and approval processes require substantial time and effort and there can be no assurance that the FDA will accept the BLA for filing
and, even if filed, that any approval will be granted on a timely basis, if at all.
Under the Prescription Drug User Fee Act, or PDUFA, as amended, each BLA must be accompanied by a user fee. The FDA
adjusts the PDUFA user fees on an annual basis. According to the FDA’s fee schedule for fiscal year 2015, which becomes effective
October 1, 2015, the user fee for an application requiring clinical data, such as a BLA, is $2,335,200. PDUFA also imposes an annual
product fee for biologics ($110,370) and an annual establishment fee ($569,200) on facilities used to manufacture prescription
biologics. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first
application filed by a small business. Additionally, no user fees are assessed on BLAs for product candidates designated as orphan
drugs, unless the product candidate also includes a non-orphan indication.
Within 60 days following submission of the application, the FDA reviews a BLA submitted to determine if it is substantially
complete before the agency accepts it for filing. The FDA may refuse to file any BLA that it deems incomplete or not properly
reviewable at the time of submission and may request additional information. In this event, the BLA must be resubmitted with the
additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. Once the submission
is accepted for filing, the FDA begins an in-depth substantive review of the BLA. The FDA reviews the BLA to determine, among
other things, whether the proposed product candidate is safe and potent, or effective, for its intended use, and has an acceptable purity
profile, and whether the product candidate is being manufactured in accordance with GMP regulations to assure and preserve the
product candidate’s identity, safety, strength, quality, potency and purity. The FDA may refer applications for novel biological
products or biological products that present difficult questions of safety or efficacy to an advisory committee, typically a panel that
includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved
and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such
recommendations carefully when making decisions. During the biological product approval process, the FDA also will determine
whether a Risk Evaluation and Mitigation Strategy, or REMS, is necessary to assure the safe use of the biological product candidate.
A REMS may be imposed to ensure safe use of the drug, and could include medication guides, physician communication plans, or
elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. If the FDA
concludes a REMS is needed, the sponsor of the BLA must submit a proposed REMS; the FDA will not approve the BLA without a
REMS, if required.
Before approving a BLA, the FDA will inspect the facilities at which the product candidate is manufactured. The FDA will not
approve the product candidate unless it determines that the manufacturing processes and facilities are in compliance with GMP
requirements and adequate to assure consistent production of the product candidate within required specifications. Additionally,
before approving a BLA, the FDA may inspect one or more clinical sites to assure that the clinical trials were conducted in
compliance with IND trial requirements and GCP requirements. To assure GMP and GCP compliance, an applicant must incur
significant expenditure of time, money and effort in the areas of training, record keeping, production, and quality control.
Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy
its regulatory criteria for approval and deny approval. Data obtained from clinical trials are not always conclusive and the FDA may
interpret data differently than we interpret the same data. If the agency decides not to approve the BLA in its present form, the FDA
will issue a complete response letter that usually describes all of the specific deficiencies in the BLA identified by the FDA. The
deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical
trials. Additionally, the complete response letter may include recommended actions that the applicant might take to place the
application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the BLA, addressing
all of the deficiencies identified in the letter, or withdraw the application.
If a product candidate receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or
the indications for use may otherwise be limited, which could restrict the commercial value of the product candidate. Further, the FDA
may require that certain contraindications, warnings or precautions be included in the product labeling. The FDA may impose
restrictions and conditions on product distribution, prescribing, or dispensing in the form of a REMS, or otherwise limit the scope of
any approval. In addition, the FDA may require post marketing clinical trials, sometimes referred to as Phase 4 clinical trials, designed
to further assess a biological product’s safety and effectiveness, and testing and surveillance programs to monitor the safety of
approved products that have been commercialized.
One of the performance goals agreed to by the FDA under the PDUFA is to review 90% of standard BLAs in 10 months and
90% of priority BLAs in six months, whereupon a review decision is to be made. The FDA does not always meet its PDUFA goal
dates for standard and priority BLAs and its review goals are subject to change from time to time. The review process and the PDUFA
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goal date may be extended by three months if the FDA requests or the BLA sponsor otherwise provides additional information or
clarification regarding information already provided in the submission within the last three months before the PDUFA goal date.
Orphan drug designation
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product candidate intended to treat a
rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or
more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and
making a drug or biological product available in the United States for this type of disease or condition will be recovered from sales of
the product candidate. Orphan product designation must be requested before submitting an NDA or BLA. After the FDA grants
orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA.
Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.
If a product candidate that has orphan designation subsequently receives the first FDA approval for the disease or condition for
which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any
other applications to market the same drug or biological product for the same indication for seven years, except in limited
circumstances, such as a showing of clinical superiority to the product with orphan exclusivity. Competitors, however, may receive
approval of different products for the indication for which the orphan product has exclusivity or obtain approval for the same product
but for a different indication for which the orphan product has exclusivity. Orphan product exclusivity also could block the approval
of one of our products for seven years if a competitor obtains approval of the same biological product as defined by the FDA or if our
product candidate is determined to be contained within the competitor’s product for the same indication or disease. If a drug or
biological product designated as an orphan product receives marketing approval for an indication broader than what is designated, it
may not be entitled to orphan product exclusivity. Orphan drug status in the European Union has similar, but not identical, benefits.
Expedited development and review programs
The FDA has a Fast Track program that is intended to expedite or facilitate the process for reviewing new drugs and biological
products that meet certain criteria. Specifically, new drugs and biological products are eligible for Fast Track designation if they are
intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the
disease or condition. Fast Track designation applies to the combination of the product candidate and the specific indication for which
it is being studied. The sponsor of a new drug or biologic may request the FDA to designate the drug or biologic as a Fast Track
product candidate at any time during the clinical development of the product candidate. Unique to a Fast Track product candidate, the
FDA may consider for review sections of the marketing application on a rolling basis before the complete application is submitted, if
the sponsor provides a schedule for the submission of the sections of the application, the FDA agrees to accept sections of the
application and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first
section of the application.
Any product candidate submitted to the FDA for marketing, including under a Fast Track program, may be eligible for other
types of FDA programs intended to expedite development and review, such as priority review and accelerated approval. Any product
candidate is eligible for priority review if it has the potential to provide safe and effective therapy where no satisfactory alternative
therapy exists or a significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products. The
FDA will attempt to direct additional resources to the evaluation of an application for a new drug or biological product candidate
designated for priority review in an effort to facilitate the review, and aims to review such applications within six months as opposed
to ten months for standard review. Additionally, a product candidate may be eligible for accelerated approval. Drug or biological
products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful
therapeutic benefit over existing treatments may receive accelerated approval, which means that they may be approved on the basis of
adequate and well-controlled clinical trials establishing that the product candidate has an effect on a surrogate endpoint that is
reasonably likely to predict a clinical benefit, or on the basis of an effect on a clinical endpoint other than survival or irreversible
morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the
availability or lack of alternative treatments. As a condition of approval, the FDA may require that a sponsor of a drug or biological
product candidate receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials. In addition, the
FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact
the timing of the commercial launch of the product.
Lastly, under the provisions of the new Food and Drug Administration Safety and Innovation Act, or FDASIA, enacted in 2012,
a sponsor can request designation of a product candidate as a “breakthrough therapy.” A breakthrough therapy is defined as a drug that
is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and
preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more
clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Drugs designated as
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breakthrough therapies are also eligible for accelerated approval and receive the same benefits as drugs with Fast Track designation.
The FDA must take certain actions, such as holding timely meetings and providing advice, intended to expedite the development and
review of an application for approval of a breakthrough therapy.
Fast Track designation, priority review, accelerated approval and breakthrough therapy designation do not change the standards
for approval but may expedite the development or approval process.
Post-approval requirements
Maintaining compliance with applicable federal, state, and local statutes and regulations requires the expenditure of substantial
time and financial resources. Rigorous and extensive FDA regulation of biological products continues after approval, particularly with
respect to GMP requirements. We will rely, and expect to continue to rely, on third parties for the production of clinical and
commercial quantities of any products that we may commercialize. Manufacturers of our products are required to comply with
applicable requirements in the GMP regulations, including quality control and quality assurance and maintenance of records and
documentation. Other post-approval requirements applicable to biological products include reporting of GMP deviations that may
affect the identity, potency, purity and overall safety of a distributed product, record-keeping requirements, reporting of adverse
effects, reporting updated safety and efficacy information, and complying with electronic record and signature requirements. After a
BLA is approved, the product may also be subject to official lot release. In this case, as part of the manufacturing process, the
manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is
subject to official release by the FDA, the manufacturer submits samples of each lot of product to the FDA together with a release
protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the
lot. The FDA also may perform certain confirmatory tests on lots of some products, such as viral vaccines, before releasing the lots for
distribution by the manufacturer. In addition, the FDA conducts laboratory research related to the regulatory standards on the safety,
purity, potency, and effectiveness of biological products.
We also must comply with the FDA’s advertising and promotion requirements, such as those related to direct-to-consumer
advertising, the prohibition on promoting products for uses or in patient populations that are not described in the product’s approved
labeling (known as “off-label use”), industry-sponsored scientific and educational activities, and promotional activities involving the
internet. Discovery of previously unknown problems or the failure to comply with the applicable regulatory requirements may result
in restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal
sanctions. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval
process or after approval, may subject an applicant or manufacturer to administrative or judicial civil or criminal sanctions and adverse
publicity. FDA sanctions could include refusal to approve pending applications, withdrawal of an approval, clinical hold, warning or
untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of
government contracts, mandated corrective advertising or communications with doctors, debarment, restitution, disgorgement of
profits, or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.
Biological product manufacturers and other entities involved in the manufacture and distribution of approved biological
products are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced
inspections by the FDA and certain state agencies for compliance with GMPs and other laws. Accordingly, manufacturers must
continue to expend time, money, and effort in the area of production and quality control to maintain GMP compliance. Discovery of
problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved BLA, including
withdrawal of the product from the market. In addition, changes to the manufacturing process or facility generally require prior FDA
approval before being implemented and other types of changes to the approved product, such as adding new indications and additional
labeling claims, are also subject to further FDA review and approval.
United States patent term restoration and marketing exclusivity
Depending upon the timing, duration and specifics of the FDA approval of the use of our product candidates, some of our U.S.
patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984,
commonly referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to
five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent
term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent
term restoration period is generally one-half the time between the effective date of an IND and the submission date of a BLA plus the
time between the submission date of a BLA and the approval of that application. Only one patent applicable to an approved biological
product is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The
United States Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term
extension or restoration. In the future, we may apply for restoration of patent term for one or more of our currently owned or licensed
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patents to add patent life beyond its current expiration date, depending on the expected length of the clinical trials and other factors
involved in the filing of the relevant BLA.
A biological product can obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted, adds six
months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity
protection or patent term, may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued
“Written Request” for such a study.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or
Affordable Care Act, signed into law on March 23, 2010, includes a subtitle called the Biologics Price Competition and Innovation
Act of 2009 which created an abbreviated approval pathway for biological products shown to be similar to, or interchangeable with, an
FDA-licensed reference biological product. This amendment to the PHS Act attempts to minimize duplicative testing. Biosimilarity,
which requires that there be no clinically meaningful differences between the biological product and the reference product in terms of
safety, purity, and potency, can be shown through analytical studies, animal studies, and a clinical trial or trials. Interchangeability
requires that a product is biosimilar to the reference product and the product must demonstrate that it can be expected to produce the
same clinical results as the reference product and, for products administered multiple times, the biologic and the reference biologic
may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to
exclusive use of the reference biologic. However, complexities associated with the larger, and often more complex, structure of
biological products, as well as the process by which such products are manufactured, pose significant hurdles to implementation that
are still being worked out by the FDA.
A reference biologic is granted twelve years of exclusivity from the time of first licensure of the reference product. On April 10,
2013, President Obama released his proposed budget for fiscal year 2014 and proposed to cut this twelve-year period of exclusivity
down to seven years. He also proposed to prohibit additional periods of exclusivity for brand biologics due to minor changes in
product formulations, a practice often referred to as “evergreening.” The first biologic product submitted under the abbreviated
approval pathway that is determined to be interchangeable with the reference product has exclusivity against other biologics
submitting under the abbreviated approval pathway for the lesser of (i) one year after the first commercial marketing, (ii) 18 months
after approval if there is no legal challenge, (iii) 18 months after the resolution in the applicant’s favor of a lawsuit challenging the
biologics’ patents if an application has been submitted, or (iv) 42 months after the application has been approved if a lawsuit is
ongoing within the 42-month period.
Pharmaceutical Coverage, Pricing and Reimbursement
Sales of our products, when and if approved for marketing, will depend, in part, on the extent to which our products will be
covered by third-party payors, such as federal, state, and foreign government health care programs, commercial insurance and
managed healthcare organizations. These third-party payors are increasingly reducing reimbursements for medical products, drugs and
services. In addition, the U.S. government, state legislatures and foreign governments have continued implementing cost containment
programs, including price controls, restrictions on coverage and reimbursement and requirements for substitution of generic products.
Adoption of price controls and cost containment measures, and adoption of more restrictive policies in jurisdictions with existing
controls and measures, could further limit our net revenue and results. Decreases in third-party reimbursement for our product
candidates or a decision by a third-party payor not to cover our product candidates could reduce physician usage of our products once
approved and have a material adverse effect on our sales, results of operations and financial condition.
Other Healthcare Laws
Although we currently do not have any products on the market, we may be subject to additional healthcare regulation and
enforcement by the federal government and by authorities in the states and foreign jurisdictions in which we conduct our business.
Such laws include, without limitation, state and federal anti-kickback, fraud and abuse, false claims, privacy and security and
physician sunshine laws and regulations, many of which may become more applicable to us if our product candidates are approved
and we begin commercialization. If our operations are found to be in violation of any of such laws or any other governmental
regulations that apply to us, we may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines,
the curtailment or restructuring of our operations, exclusion from participation in federal and state healthcare programs and
imprisonment, any of which could adversely affect our ability to operate our business and our financial results.
Employees
As of June 30, 2015, we had 35 full-time employees, 23 of whom have Ph.D., M.D. or other post-graduate degrees. Of these
full-time employees, 25 are engaged in research and development activities and 10 are engaged in finance, legal, human resources,
facilities and general management.
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All of our personnel are co-employees of AGTC and a professional human resource service organization, TriNet HR
Corporation, or TriNet. Under our agreement with TriNet, TriNet is a co-employer of our personnel, and is responsible for
administering all payroll functions, including tax withholding, and providing health insurance and other benefits for these individuals.
We reimburse TriNet for these costs and pay TriNet an administrative fee for its services. We are responsible for, and control, all
aspects of the hiring, retention, compensation, management and supervision of our personnel. We consider the terms of our contract
with TriNet to be reasonable and customary and believe this arrangement provides substantial benefit to us, in the form of lower costs
for employee benefits and a reduced administrative burden on us.
We have no collective bargaining agreements with our employees and we have not experienced any work stoppages. We
consider our relations with our employees to be good.
Corporate information
We were incorporated in Florida in January 1999 and reincorporated in Delaware in October 2003. On April 1, 2014, we
completed our initial public offering of our common stock, which is traded on The NASDAQ Global Market under the symbol
“AGTC.” Our principal executive offices are located at 11801 Research Drive, Suite D, Alachua, Florida 32615, and our telephone
number is (386) 462-2204. Our corporate website address is www.agtc.com. Information contained on or accessible through our
website is not a part of this annual report.
We use “AGTC” and the double helix logo as trademarks in the United States and other countries. As of June 30, 2015, these
trademarks have been registered in the United States, European Union and Japan.
This annual report contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience,
trademarks and trade names referred to in this annual report, including logos, artwork, and other visual displays, may appear without
the or ™ symbols, but such references are not intended to indicate that we will not assert, to the fullest extent under applicable law,
our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other
companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any such companies.
Implications of being an emerging growth company
As a company with less than $1 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as
defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take
advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These
provisions include:
only two years of audited financial statements, in addition to any required unaudited interim financial statements, with
correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
disclosure;
reduced disclosure about our executive compensation arrangements;
no non-binding advisory votes on executive compensation or golden parachute arrangements; and
exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting.
We may take advantage of these exemptions for up to five years from the date of our initial public offering of common stock or
such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have
more than $1 billion in annual revenue, we have more than $700 million in market value of our stock held by non-affiliates or we
issue more than $1 billion of non-convertible debt over a three-year period. We may choose to take advantage of some, but not all, of
the available exemptions.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for
complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain
accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail
ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised
accounting standards as other public companies that are not emerging growth companies.
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Item 1A.
Risk Factors
You should carefully consider the risks and uncertainties described below, together with the information included elsewhere in
this Annual Report on Form 10-K and other documents we file with the SEC. The risks and uncertainties described below are those
that we have identified as material, but are not the only risks and uncertainties facing us. Our business is also subject to general risks
and uncertainties that affect many other companies, such as overall U.S. and non-U.S. economic and industry conditions including a
global economic slowdown, geopolitical events, changes in laws or accounting rules, fluctuations in interest and exchange rates,
terrorism, international conflicts, major health concerns, natural disasters or other disruptions of expected economic and business
conditions. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair
our business operations and liquidity.
Risks related to our financial condition and capital requirements
We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the
foreseeable future.
We are a clinical-stage biotechnology company, and we have not yet generated revenues from product sales. We have incurred
losses from operations in each year since our inception in 1999, and net losses of $24.3 million, $15.9 million, and $5.0 million for the
years ended June 30, 2015, 2014 and 2013, respectively. As of June 30, 2015, we had an accumulated deficit of $88.7 million. Our
prior losses, combined with expected future losses, have had and may continue to have an adverse effect on our stockholders’ equity
and working capital.
We have devoted most of our financial resources to research and development, including our clinical and preclinical
development activities. To date, we have financed our operations primarily through the sale of equity securities and, to a lesser extent,
through research grants from third parties or milestone payments from a collaborator. The amount of our future net losses will depend,
in part, on the rate of our future expenditures and our ability to obtain funding through equity or debt financings, strategic
collaborations or additional grants. We anticipate that it will be several years, if ever, before we have a product candidate ready for
commercialization. Even if we obtain regulatory approval to market a product candidate, our future revenues will depend upon the
size of any markets in which our product candidates have received approval, and our ability to achieve sufficient market acceptance,
reimbursement from third-party payors and adequate market share for our product candidates in those markets.
We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that
our expenses will increase substantially if and as we:
continue our research and preclinical and clinical development of our product candidates;
expand the scope of our current clinical trials for our product candidates;
initiate additional preclinical studies, clinical trials or other studies for our product candidates;
further develop our gene therapy platform, including the process for design, delivery and manufacturing of our vectors for
our product candidates;
change or add additional manufacturers or suppliers;
seek regulatory and marketing approvals for our product candidates that successfully complete clinical trials;
establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain
marketing approval;
seek to identify and validate additional product candidates;
acquire or in-license other product candidates and technologies;
make milestone or other payments under any in-license agreements;
maintain, protect and expand our intellectual property portfolio;
attract and retain skilled personnel;
create additional infrastructure to support our operations as a public company and our product development and planned
future commercialization efforts; and
experience any delays or encounter issues with any of the above.
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The net losses we incur may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period
comparison of our results of operations may not be a good indication of our future performance. In any particular quarter or quarters,
our operating results could be below the expectations of securities analysts or investors, which could cause our stock price to decline.
Our ability to generate revenue from product sales is highly uncertain and we may never achieve or sustain profitability,
which could depress the market price of our common stock, and could cause you to lose part or all of your investment.
All of our revenue generated to date has come from research grants from third parties or license fees or milestone payments
from collaborations. Our ability to generate substantial revenue and achieve profitability depends on our ability, alone or with strategic
collaboration partners such as Biogen, to successfully complete the development of, and obtain the regulatory approvals necessary to
commercialize, our product candidates. We do not anticipate generating revenues from product sales for at least the next several years,
if ever. If any of our product candidates fail in clinical trials or do not gain regulatory approval, or if any of our product candidates, if
approved, fail to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may
not be able to sustain profitability in subsequent periods. Our ability to generate future revenues from product sales depends heavily
on our success in:
completing research and preclinical and clinical development of our product candidates;
seeking and obtaining regulatory and marketing approvals for product candidates for which we complete clinical trials;
establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate (in
amount and quality) products and services to support clinical development and the market demand for our product
candidates, if approved;
launching and commercializing product candidates for which we obtain regulatory and marketing approval, either by
collaborating with a partner or, if launched independently, by establishing a sales, marketing and distribution
infrastructure;
obtaining and maintaining adequate coverage and reimbursement from third-party payors for our product candidates;
obtaining market acceptance of our product candidates and gene therapy as a viable treatment option;
addressing any competing technological and market developments;
implementing additional internal systems and infrastructure, as needed;
identifying and validating new gene therapy product candidates;
negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter;
maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and
know-how; and
attracting, hiring and retaining qualified personnel.
Even if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring
significant costs associated with commercializing any approved product candidate, particularly to the extent that we seek to
commercialize any product for an indication, such as wet AMD, that has a patient population significantly larger than those addressed
by our current lead product candidates. Our expenses could increase beyond expectations if we are required by the FDA, the EMA or
other regulatory agencies, domestic or foreign, to perform clinical trials and other studies in addition to those that we currently
anticipate. Even if we are able to generate revenues from the sale of any approved products, we may not become profitable and may
need to obtain additional funding to continue operations. Our failure to become and remain profitable would depress the market price
of our common stock and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our
operations.
In order to obtain regulatory approval for and commercialize our product candidates, we will need to raise additional
funding in the future, which may not be available on acceptable terms, or at all. Failure to obtain necessary capital when needed
may force us to delay, limit or terminate our product development efforts or other operations.
Other than our product candidate for the treatment of XLRS, all of our lead programs in orphan ophthalmology are currently in
preclinical development. Developing gene therapy products is expensive, and we expect our research and development expenses to
increase substantially as we advance our current product candidates in clinical trials and as we undertake preclinical studies of new
product candidates.
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Our operations have consumed substantial amounts of cash since inception. As of June 30, 2015, our cash and cash equivalents
and investments amounted to $85.3 million. Our research and development expenses were $16.5 million, $8.5 million and $3.1 million
for the fiscal years ended June 30, 2015, 2014 and 2013, respectively. We believe that our existing cash and cash equivalents at June
30, 2015, combined with the net proceeds from our collaboration with Biogen, will be sufficient to enable us to advance planned
preclinical studies and clinical trials for our lead product candidates 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.
Any such fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our
ability to develop and commercialize our product candidates. In addition, financing may not be available to us in the future in
sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the
rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance,
may cause the market price of our shares to decline. The sale of additional equity or convertible securities would dilute all of our
stockholders. The incurrence of indebtedness would result in increased fixed payment obligations and a portion of our operating cash
flows, if any, being dedicated to the payment of principal and interest on such indebtedness, and we may be required to agree to
certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or
license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We
could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise
would be desirable or on terms that are less favorable than might otherwise be available, and we may be required to relinquish or
license on unfavorable terms rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us,
any of which may have a material adverse effect on our business, financial condition, results of operations and prospects and cause the
price of our common stock to decline.
If we are unable to obtain needed funding on a timely basis, we may be required to significantly curtail, delay or discontinue one
or more of our research or development programs or the commercialization of any product candidates or be unable to expand our
operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial
condition, results of operations and prospects and cause the price of our common stock to decline.
Our cash balances and investment portfolio are subject to various risks, any of which could adversely impact our financial
position.
We have cash and cash equivalents and investments in the aggregate amount of $85.3 million, which represents approximately
95% of our total assets. These investments are subject to general credit, liquidity, market, political, sovereign and interest rate risks,
which may be exacerbated by unusual events that affect global financial markets. A material part of our investment portfolio consists
of money market accounts and certificates of deposits. If global credit and equity markets experience prolonged periods of decline, our
investment portfolio may be adversely impacted and we could determine that our investments may experience an other-than-
temporary decline in fair value, requiring impairment charges that could adversely affect our financial results. A failure of any of the
financial institutions in which our deposits exceed FDIC limits could also have an adverse impact on our financial position.
Risks related to the discovery and development of our product candidates
All of our product candidates are in preclinical or clinical development. Clinical drug development is expensive, time
consuming and uncertain, and we may ultimately not be able to obtain regulatory approvals for the commercialization of some or
all of our product candidates.
The research, testing, manufacturing, labeling, approval, selling, marketing and distribution of drug products are subject to
extensive regulation by the FDA and other regulatory authorities, which regulations differ from country to country. Our product
candidates are in various stages of development and are subject to the risks of failure typical of drug development. The development
and approval process is expensive and can take many years to complete, and its outcome is inherently uncertain. We have not
submitted an application for or received marketing approval for any of our product candidates. We have limited experience in
conducting and managing the later stage clinical trials necessary to obtain regulatory approvals, including approval by the FDA. To
receive approval, we must, among other things, demonstrate with substantial evidence from clinical trials that the product candidate is
both safe and effective for each indication for which approval is sought, and failure can occur in any stage of development.
Satisfaction of the approval requirements typically takes several years and the time needed to satisfy them may vary substantially,
34
based on the type, complexity and novelty of the pharmaceutical product. We cannot predict if or when we might receive regulatory
approvals for any of our product candidates currently under development.
The FDA and foreign regulatory authorities also have substantial discretion in the drug approval process. The number and types
of preclinical studies and clinical trials that will be required for regulatory approval varies depending on the product candidate, the
disease or condition that the product candidate is designed to address, and the regulations applicable to any particular product
candidate. Approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the
course of a product candidate’s clinical development and may vary among jurisdictions, and there may be varying interpretations of
data obtained from preclinical studies or clinical trials, either of which may cause delays or limitations in the approval or the decision
not to approve an application. Regulatory agencies can delay, limit or deny approval of a product candidate for many reasons,
including:
the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical
trials;
we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a
product candidate is safe and effective for its proposed indication;
the results of clinical trials may not meet the level of statistical or clinical significance required by the FDA or comparable
foreign regulatory authorities for approval;
the patients recruited for a particular clinical program may not be sufficiently broad or representative to assure safety in
the full population for which we seek approval;
the results may not confirm the positive results from earlier preclinical studies or clinical trials;
we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies
or clinical trials;
the data collected from clinical trials of our product candidates may not be sufficient to the satisfaction of FDA or
comparable foreign regulatory authorities to support the submission of a biologics license application, or BLA, or other
comparable submission in foreign jurisdictions or to obtain regulatory approval in the United States or elsewhere;
regulatory agencies might not approve or might require changes to our manufacturing processes or facilities; or
regulatory agencies may change their approval policies or adopt new regulations in a manner rendering our clinical data
insufficient for approval.
Any delay in obtaining or failure to obtain required approvals could materially adversely affect our ability to generate revenue
from the particular product candidate, which likely would result in significant harm to our financial position and adversely impact our
stock price. Furthermore, any regulatory approval to market a product may be subject to limitations on the indicated uses for which we
may market the product. These limitations may limit the size of the market for the product.
We are not permitted to market our product candidates in the United States or in other countries until we receive approval of a
BLA from the FDA or marketing approval from applicable regulatory authorities outside the United States. Obtaining approval of a
BLA can be a lengthy, expensive and uncertain process. If we fail to obtain FDA approval to market our product candidates, we will
be unable to sell our product candidates in the United States, which will significantly impair our ability to generate any revenues. In
addition, failure to comply with FDA and non-U.S. regulatory requirements may, either before or after product approval, if any,
subject our company to administrative or judicially imposed sanctions, including:
restrictions on our ability to conduct clinical trials, including full or partial clinical holds on ongoing or planned trials;
restrictions on the products, manufacturers or manufacturing process;
warning letters;
civil and criminal penalties;
injunctions;
suspension or withdrawal of regulatory approvals;
product seizures, detentions or import bans;
35
voluntary or mandatory product recalls and publicity requirements;
total or partial suspension of production;
imposition of restrictions on operations, including costly new manufacturing requirements; and
refusal to approve pending BLAs or supplements to approved BLAs.
Even if we do receive regulatory approval to market a product candidate, any such approval may be subject to limitations on the
indicated uses for which we may market the product. It is possible that none of our existing product candidates or any product
candidates we may seek to develop in the future will ever obtain the appropriate regulatory approvals necessary for us or our
collaborators to commence product sales. Any delay in obtaining, or an inability to obtain, applicable regulatory approvals would
prevent us from commercializing our product candidates, generating revenues and achieving and sustaining profitability.
Our gene therapy product candidates are based on a novel technology, which makes it difficult to predict the time and cost of
product candidate development and subsequently obtaining regulatory approval. At the moment, no gene therapy products have
been approved in the United States and only one such product has been approved in Europe.
We have concentrated our product research and development efforts on our gene therapy platform, and our future success
depends on the successful development of this approach. There can be no assurance that any development problems we experience in
the future related to our gene therapy platform will not cause significant delays or unanticipated costs, or that such development
problems can be solved. We may also experience unanticipated problems or delays in expanding our manufacturing capacity or
transferring our manufacturing process to commercial partners, which may prevent us from completing our clinical trials or
commercializing our products on a timely or profitable basis, if at all.
In addition, the clinical trial requirements of the FDA, the EMA and other regulatory agencies and the criteria these regulators
use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and
intended use and market of such product candidates. The regulatory approval process for novel product candidates such as ours can be
more expensive and take longer than for other, better known or extensively studied pharmaceutical or other product candidates.
Regulatory requirements governing gene and cell therapy products have changed frequently and may continue to change in the
future. For example, the FDA has established the Office of Cellular, Tissue and Gene Therapies within its Center for Biologics
Evaluation and Research, or CBER, to consolidate the review of gene therapy and related products, and the Cellular, Tissue and Gene
Therapies Advisory Committee to advise CBER on its review. Gene therapy clinical trials conducted at institutions that receive
funding for recombinant DNA research from the United States National Institutes of Health, or the NIH, are also subject to review by
the NIH Office of Biotechnology Activities’ Recombinant DNA Advisory Committee, or the RAC. Although the FDA decides
whether individual gene therapy protocols may proceed, the RAC review process can delay the initiation of a clinical trial, even if the
FDA has reviewed the trial design and details and approved its initiation. Conversely, the FDA can put an IND on clinical hold even if
the RAC has provided a favorable review of the drug. Also, before a clinical trial can begin at an NIH-funded institution, that
institution’s institutional review board, or IRB, and its Institutional Biosafety Committee have to review the proposed clinical trial to
assess the safety of the trial. In addition, adverse developments in clinical trials of gene therapy products conducted by others may
cause the FDA or other regulatory bodies to change the requirements for approval of any of our product candidates.
These regulatory review committees and advisory groups and the new guidelines they promulgate may lengthen the regulatory
review process, require us to perform additional studies, increase our development costs, lead to changes in regulatory positions and
interpretations, delay or prevent approval and commercialization of these product candidates or lead to significant post-approval
limitations or restrictions. As we advance our product candidates, we will be required to consult with these regulatory and advisory
groups, and comply with applicable guidelines. If we fail to do so, we may be required to delay or discontinue development of our
product candidates. These additional processes may result in a review and approval process that is longer than we otherwise would
have expected for orphan ophthalmology product candidates. Delay or failure to obtain, or unexpected costs in obtaining, the
regulatory approval necessary to bring a potential product to market could decrease our ability to generate sufficient product revenue
to maintain our business.
Success in animal studies or early clinical trials may not be indicative of results obtained in later trials.
Trial designs and results from animal studies or previous clinical trials are not necessarily predictive of our future clinical trial
designs or results, and interim results of a clinical trial are not necessarily indicative of final results. Our product candidates may also
fail to show the desired safety and efficacy in clinical development despite demonstrating positive results in animal studies or having
successfully advanced through initial clinical trials. For example, our animal studies of our AAT product candidate resulted in
evidence of significant production of AAT levels, but early clinical trials of our product candidate showed significantly lower levels of
36
AAT production in treated patients. We subsequently initiated a study in a non-human primate model of an alternative vascular
delivery method for this product candidate. In the second quarter of fiscal year 2015, we obtained results from this study that were less
encouraging with respect to the efficacy of this method of delivery than we had expected (i.e. we did not see higher levels of protein
expression). As a result we will undertake additional pre-clinical studies of vascular routes of administration for this product
candidate. There can be no assurance that the success we achieved in the animal studies for our lead product candidates will result in
success in our clinical trials of those product candidates.
There is a high failure rate for drugs and biological products proceeding through clinical trials. A number of companies in the
pharmaceutical and biotechnology industries have suffered significant setbacks in later stage clinical trials even after achieving
promising results in earlier stage clinical trials. Data obtained from preclinical and clinical activities are subject to varying
interpretations, which may delay, limit or prevent regulatory approval. In addition, we may experience regulatory delays or rejections
as a result of many factors, including due to changes in regulatory policy during the period of our product candidate development.
We may find it difficult to enroll patients in our clinical trials, which could delay or prevent clinical trials of our product
candidates.
Identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. The timing
of our clinical trials depends on the speed at which we can recruit patients to participate in testing our product candidates as well as
completion of required follow-up periods. If patients are unwilling to participate in our gene therapy studies because of negative
publicity from adverse events in the biotechnology or gene therapy industries or for other reasons, including competitive clinical trials
for similar patient populations, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of our
product candidates may be delayed. For example, trials using early versions of lentiviral vectors, which integrate with, and thereby
alter, the host cell’s DNA, have led to several well-publicized adverse events, including reported cases of leukemia. If there are delays
in accumulating the required number of clinical events in trials for our product candidates where clinical events are a primary
endpoint, there may be delays in completing the trial. These delays could result in increased costs, delays in advancing our product
candidates, delays in testing the effectiveness of our technology or termination of the clinical trials altogether.
We may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired
characteristics to achieve diversity in a trial, to complete our clinical trials in a timely manner. In particular, each of the conditions for
which we plan to evaluate our product candidates are rare genetic disorders with limited patient pools from which to draw for clinical
trials. The eligibility criteria of our clinical trials will further limit the pool of available trial participants.
Patient enrollment is affected by factors including:
severity of the disease under investigation;
design of the clinical trial protocol;
size and nature of the patient population;
eligibility criteria for the trial in question;
perceived risks and benefits of the product candidate under trial;
proximity and availability of clinical trial sites for prospective patients;
availability of competing therapies and clinical trials;
clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available
therapies, including any new drugs that may be approved for the indications we are investigating;
efforts to facilitate timely enrollment in clinical trials;
patient referral practices of physicians; and
our ability to monitor patients adequately during and after treatment.
If we have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may be forced to
delay, limit or terminate ongoing or planned clinical trials, any of which would have an adverse effect on our business. We could
encounter delays if physicians encounter unresolved ethical issues associated with enrolling patients in clinical trials of our product
candidates in lieu of prescribing existing treatments that have established safety and efficacy profiles.
37
We plan to seek initial marketing approval for our product candidates in the United States and the European Economic Area, or
EEA. We may not be able to initiate or continue clinical trials if we cannot enroll a sufficient number of eligible patients to participate
in the clinical trials required by the FDA, the EMA or other foreign regulatory authorities. Our ability to successfully initiate, enroll
and complete a clinical trial in any foreign country is subject to numerous risks unique to conducting business in foreign countries,
including:
difficulty in establishing or managing relationships with contract research organizations, or CROs, and physicians;
different standards for conducting clinical trials;
our inability to locate qualified local consultants, physicians and partners; and
the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements,
including the regulation of pharmaceutical and biotechnology products and treatments.
We may encounter substantial delays in our clinical trials or we may fail to demonstrate safety and efficacy to the
satisfaction of applicable regulatory authorities.
Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct
extensive clinical trials to demonstrate the safety and efficacy of such product candidates in humans. Clinical testing is expensive,
time-consuming and uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned or completed
on schedule, if at all. A failure of one or more clinical trials can occur at any stage of testing. Events that may prevent successful or
timely completion of clinical development include:
delays in raising, or inability to raise, sufficient capital to fund the planned clinical trials;
inability to generate sufficient preclinical, toxicology, or other data to support the initiation of human clinical trials;
delays in reaching a consensus with regulatory agencies on trial design;
identifying, recruiting and training suitable clinical investigators;
delays in reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be
subject to extensive negotiation and may vary significantly among different CROs and trial sites;
delays in obtaining required IRB approval at each clinical trial site;
delays in recruiting suitable patients to participate in our clinical trials;
delays due to changing standard of care for the diseases we are targeting;
adding new clinical trial sites;
imposition of a clinical hold by regulatory agencies, after review of an IND application or equivalent application or an
inspection of our clinical trial operations or trial sites;
failure by our CROs, other third parties or us to adhere to clinical trial requirements;
loss of product due to shipping delays or delays in customs in connection with delivery to foreign countries for use in
clinical trials;
failure to perform in accordance with the FDA’s good clinical practices, or GCP requirements or applicable regulatory
guidelines in other countries;
inability to manufacture, test, release, import or export for use sufficient quantities of our product candidates for use in
clinical trials;
failure to manufacture our product candidate in accordance with the FDA’s good manufacturing practice, or GMP,
requirements or applicable regulatory guidelines in other countries;
delays in the testing, validation and delivery of our product candidates to the clinical trial sites;
delays in having patients complete participation in a trial or return for post-treatment follow-up;
clinical trial sites deviating from trial protocol or clinical trial sites or patients dropping out of a trial;
occurrence of serious adverse events associated with the product candidate that are viewed to outweigh its potential
benefits;
38
changes in regulatory requirements and guidance that require amending or submitting new clinical protocols;
the costs of clinical trials of our product candidates may be greater than we anticipate; or
clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators
may require us, to conduct additional clinical trials or abandon drug development programs.
Further, a clinical trial may be suspended or terminated by us, our collaborators, the IRBs, in the institutions in which such trials
are being conducted, the Data Safety Monitoring Board, or DSMB, for such trial, or by the FDA or other regulatory authorities due to
a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols,
inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical
hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in
governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experience
termination of, or delays in the completion of, any clinical trial of our product candidates, the commercial prospects of our product
candidates will be harmed, and our ability to generate product revenues from any of these product candidates will be delayed.
Furthermore, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also
ultimately lead to the denial of regulatory approval of our product candidates.
Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our
ability to generate revenues from product sales, regulatory and commercialization milestones and royalties. In addition, if we or our
third-party collaborators make manufacturing or formulation changes to product candidates, we or they may need to conduct
additional trial to bridge the modified product candidates to earlier versions. Clinical trial delays could also shorten any periods during
which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market
before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business and
results of operations.
If the results of our clinical trials are inconclusive or if there are safety concerns or adverse events associated with our product
candidates, we may:
be delayed in obtaining marketing approval for our product candidates, if at all;
obtain approval for indications or patient populations that are not as broad as intended or desired;
obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;
be subject to changes with the way the product is administered;
be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing
requirements;
have regulatory authorities withdraw their approval of the product or impose restrictions on its distribution in the form of
a modified risk evaluation and mitigation strategy;
be subject to the addition of labeling statements, such as warnings or contraindications;
be sued; or
experience damage to our reputation.
Any of these events could prevent us from achieving or maintaining market acceptance of our product candidates and impair our
ability to commercialize our product candidates.
Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their
regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following any
potential marketing approval.
As with many pharmaceutical and biological products, treatment with our product candidates may produce undesirable side
effects or adverse reactions or events. These adverse events may occur despite our belief that our AAV vectors have an improved
safety profile over prior such treatments.
Known adverse side effects that could occur with treatment with AAV vectors include an immunologic reaction to the capsid
protein or gene at early timepoints after administration. In previous clinical trials involving AAV viral vectors for gene therapy, some
subjects experienced serious adverse events, including the development of T-cell response due to immune response against the vector
39
capsid proteins. If our vectors demonstrate a similar effect, or other adverse events, we may be required to halt or delay further clinical
development of our product candidates. In addition, theoretical adverse side effects of AAV vectors include replication and spread of
the virus to other parts of the body and insertional oncogenesis, which is the process whereby the insertion of a functional gene near a
gene that is important in cell growth or division results in uncontrolled cell division, also known as cancer, which could potentially
enhance the risk of malignant transformation. Potential procedure-related events, including inflammation or injury to the eye, are
similar to those associated with standard ophthalmic intervention procedures. There is also the potential risk of delayed adverse events
following exposure to gene therapy products due to persistent biological activity of the genetic material or other components of
products used to carry the genetic material.
If any such adverse events occur, our clinical trials could be suspended or terminated and the FDA, the EMA or other foreign
regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted
indications. The product-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial. If
we elect or are required to delay, suspend or terminate any clinical trial of any of our product candidates, the commercial prospects of
such product candidates will be harmed and our ability to generate product revenues from any of these product candidates will be
delayed or eliminated. Any of these occurrences may harm our business, financial condition and prospects significantly.
Additionally, if any of our product candidates receive marketing approval, the FDA could require us to adopt a Risk Evaluation
and Mitigation Strategy, or REMS, to ensure that the benefits outweigh its risks, which may include, among other things, a medication
guide outlining the risks of gene therapies for distribution to patients and a communication plan to health care practitioners.
Furthermore, if we or others later identify undesirable side effects caused by our product candidate, a number of potentially significant
negative consequences could result, including:
regulatory authorities may withdraw approvals of such product candidate;
regulatory authorities may require additional warnings on the label;
we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;
we may be required to change the way a product candidate is administered or conduct additional clinical trials;
we could be sued and held liable for harm caused to patients; and
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of our product candidates and could
significantly harm our business, prospects, financial condition and results of operations.
We may be unable to obtain orphan product designation or exclusivity for some of our product candidates. If our competitors
are able to obtain orphan product exclusivity for their products that are the same as our product candidates, we may not be able to
have competing products approved by the applicable regulatory authority for a significant period of time.
Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small
patient populations as orphan drugs. Under the Orphan Drug Act of 1983, the FDA may designate a product candidate as an orphan
drug if it is intended to treat a rare disease or condition, which is generally defined as having a patient population of fewer than
200,000 individuals diagnosed annually in the United States, or a patient population greater than 200,000 in the United States where
there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the
European Union, the EMA’s Committee for Orphan Medicinal Products, or COMP, grants orphan drug designation to promote the
development of products that are intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating
condition affecting not more than 5 in 10,000 persons in the European Union Community. Additionally, designation is granted for
products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic
condition and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the
necessary investment in developing the drug or biological product. Our product candidates for the treatment of LCA2, XLRS, ACHM
(in the form caused by mutations in the CNGB3 gene) and AAT deficiency have been granted orphan drug designations by the FDA.
We may request orphan drug designation for our other product candidates in the future but there can be no assurances that the FDA
will grant any of our product candidates such designation. Additionally, the designation by the FDA of any of our product candidates
as an orphan drug does not guarantee that the FDA will accelerate regulatory review of or ultimately approve that product candidate.
Generally, if a product candidate with an orphan drug designation subsequently receives the first marketing approval for the
indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the EMA or
the FDA from approving another marketing application for the same drug and indication for that time period, except in limited
circumstances. The applicable period is seven years in the United States and 10 years in Europe. The European exclusivity period can
40
be reduced to six years if a product no longer meets the criteria for orphan drug designation or if the product is sufficiently profitable
so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or EMA determines that the request
for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs
of patients with the rare disease or condition.
Even if we obtain orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the product
candidate from competition because different drugs can be approved for the same condition. In the United States, even after an orphan
drug is approved, the FDA can subsequently approve another drug for the same condition if the FDA concludes that the later drug is
clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care.
Even if we complete the necessary clinical trials, we cannot predict when or if we will obtain regulatory approval to
commercialize a product candidate or the approval may be for a more narrow indication than we expect.
We cannot commercialize a product candidate until the appropriate regulatory authorities have reviewed and approved the
product candidate. Even if our product candidates demonstrate safety and efficacy in clinical trials, the regulatory agencies may not
complete their review processes in a timely manner, or we may not be able to obtain regulatory approval. Additional delays may result
if an FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval. In addition, we
may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or
changes in regulatory agency policy during the period of product development, clinical trials and the review process. Regulatory
agencies also may approve a product candidate for fewer or more limited indications than requested, may not approve the price we
intend to charge for our product candidate, may impose significant limitations in the form of narrow indications, warnings, precautions
or contra-indications with respect to conditions of use or may grant approval subject to the performance of costly post-marketing
clinical trials. In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful
commercialization of our product candidates. Any of the foregoing scenarios could materially harm the commercial prospects for our
product candidates.
Even if we obtain regulatory approval for a product candidate, our products will remain subject to regulatory scrutiny.
Even if we obtain regulatory approval in a jurisdiction for our product candidates, they will be subject to ongoing regulatory
requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, and submission of
safety and other post-market information. Any regulatory approvals that we receive for our product candidates may also be subject to
limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain
requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and
efficacy of the product. For example, the holder of an approved BLA is obligated to monitor and report adverse events and any failure
of a product to meet the specifications in the BLA. FDA guidance advises that patients treated with some types of gene therapy
undergo follow-up observations for potential adverse events for as long as 15 years. The holder of an approved BLA must also submit
new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or
manufacturing process. Advertising and promotional materials must comply with FDA rules and are subject to FDA review, in
addition to other potentially applicable federal and state laws.
In addition, product manufacturers and their facilities are subject to payment of user fees and continual review and periodic
inspections by the FDA and other regulatory authorities for compliance with GMP requirements and adherence to commitments made
in the BLA or foreign marketing application. If we or a regulatory agency discovers previously unknown problems with a product
such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured or
disagrees with the promotion, marketing or labeling of that product, a regulatory agency may impose restrictions relative to that
product, the manufacturing facility or us, including requiring recall or withdrawal of the product from the market or suspension of
manufacturing.
If we fail to comply with applicable regulatory requirements following approval of any of our product candidates, a regulatory
agency may:
issue a warning letter asserting that we are in violation of the law;
seek an injunction or impose civil or criminal penalties or monetary fines;
suspend or withdraw regulatory approval;
suspend any ongoing clinical trials;
refuse to approve a pending BLA or comparable foreign marketing application (or any supplements thereto) submitted by
us or our strategic partners;
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restrict the marketing or manufacturing of the product;
seize or detain product or otherwise require the withdrawal of product from the market;
refuse to permit the import or export of products; or
refuse to allow us to enter into supply contracts, including government contracts.
Any government investigation of alleged violations of law could require us to expend significant time and resources in response
and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to
commercialize our product candidates and generate revenues.
In addition, the FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or
delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that
may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to
changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory
compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which
would adversely affect our business, prospects, financial condition and results of operations.
Even if we obtain and maintain approval for our product candidates from the FDA, we may never obtain approval for our
product candidates outside of the United States, which would limit our market opportunities and adversely affect our business.
Approval of a product candidate in the United States by the FDA does not ensure approval of such product candidate by
regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by
regulatory authorities in other foreign countries or by the FDA. Sales of our product candidates outside of the United States will be
subject to foreign regulatory requirements governing clinical trials and marketing approval. Even if the FDA grants marketing
approval for a product candidate, comparable regulatory authorities of foreign countries must also approve the manufacturing and
marketing of the product candidates in those countries. Approval procedures vary among jurisdictions and can involve requirements
and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies
or clinical trials. In many countries outside the United States, a product candidate must be approved for reimbursement before it can
be approved for sale in that country. In some cases, the price that we intend to charge for our products, if approved, is also subject to
approval. We intend to submit a marketing authorization application to the EMA for approval in the EEA, but obtaining such approval
is a lengthy and expensive process and the EMA has its own procedures for approval of product candidates. Even if a product
candidate is approved, the FDA or the EMA, as the case may be, may limit the indications for which the product may be marketed,
require extensive warnings on the product labeling or require expensive and time-consuming clinical trials or reporting as conditions
of approval. Regulatory authorities in countries outside of the United States and the EEA also have requirements for approval of
product candidates with which we must comply prior to marketing in those countries. Obtaining foreign regulatory approvals and
compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or
prevent the introduction of our product candidates in certain countries.
Further, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries and regulatory
approval of a product candidate in one country does not ensure approval in any other country, while a failure or delay in obtaining
regulatory approval in one country may have a negative effect on the regulatory approval process in others. Also, regulatory approval
for any of our product candidates may be withdrawn. If we fail to comply with the regulatory requirements in international markets
and/or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of
our product candidates will be harmed and our business will be adversely affected.
Risks related to our reliance on third parties
We expect to rely on third parties to conduct aspects of our product manufacturing and protocol development, and these
third parties may not perform satisfactorily.
We do not expect to independently conduct all aspects of our vector production, product manufacturing, protocol development,
and monitoring and management of our ongoing and planned preclinical and clinical programs. Although we intend expand our
manufacturing capabilities and, in particular, to develop a pilot program for the in-house manufacture of materials for our clinical
trials, we currently rely, and expect to continue to rely, to a significant degree, on third parties for the production of our clinical trial
materials. In such cases, we expect to control only certain aspects of their activities.
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Under certain circumstances, these third parties may be entitled to terminate their engagements with us. If we need to enter into
alternative arrangements, it could delay our product development activities. Our reliance on these third parties for research and
development activities will reduce our control over these activities but will not relieve us of our responsibility to ensure compliance
with all required regulations and study and trial protocols. If these third parties do not successfully carry out their contractual duties,
meet expected deadlines or conduct our studies in accordance with regulatory requirements or our stated study and trial plans and
protocols, or if there are disagreements between us and these third parties, we will not be able to complete, or may be delayed in
completing, the preclinical studies and clinical trials required to support future IND submissions and approval of our product
candidates. In some such cases we may need to locate an appropriate replacement third-party relationship, which may not be readily
available or on acceptable terms, which would cause additional delay with respect to the approval of our product candidates and would
thereby have a material adverse effect on our business, financial condition, results of operations and prospects.
In addition, reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured the product
candidates ourselves, including:
the inability to negotiate manufacturing agreements with third parties under commercially reasonable terms;
reduced control as a result of using third-party manufacturers for all aspects of manufacturing activities;
termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or
damaging to us; and
disruptions to the operations of our third-party manufacturers or suppliers caused by conditions unrelated to our business
or operations, including the bankruptcy of the manufacturer or supplier.
Any of these events could lead to clinical trial delays or failure to obtain regulatory approval, or impact our ability to
successfully commercialize future product candidates. Some of these events could be the basis for FDA action, including injunction,
recall, seizure or total or partial suspension of product manufacture.
We and our contract manufacturer are subject to significant regulatory oversight with respect to manufacturing our
products. The manufacturing facilities on which we rely may not continue to meet regulatory requirements and may have limited
capacity.
All parties involved in the preparation of therapeutics for clinical trial or commercial sale, including our existing contract
manufacturer for our product candidates, SAFC Pharma, are subject to extensive regulation. Components of a finished therapeutic
product approved for commercial sale or used in late-stage clinical trials must be manufactured in accordance with GMP
requirements. These regulations govern manufacturing processes and procedures (including record keeping) and the implementation
and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor
control of production processes can lead to the introduction of adventitious agents or other contaminants, or to inadvertent changes in
the properties or stability of our product candidates that may not be detectable in final product testing. We or our contract
manufacturers must supply all necessary documentation in support of a BLA on a timely basis and must adhere to the FDA’s GMP
requirements enforced by the FDA through its facilities inspection program. Our facilities and quality systems and the facilities and
quality systems of some or all of our third-party contractors must pass a pre-approval inspection for compliance with the applicable
regulations as a condition of regulatory approval of our product candidates. In addition, the regulatory authorities may, at any time,
audit or inspect a manufacturing facility involved with the preparation of our product candidates or the associated quality systems for
compliance with the regulations applicable to the activities being conducted. If these facilities do not pass a pre-approval plant
inspection, FDA approval of the products will not be granted.
The regulatory authorities also may, at any time following approval of a product for sale, audit our manufacturing facilities or
those of our third-party manufacturers. If any such inspection or audit identifies a failure to comply with applicable regulations or if a
violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant
regulatory authority may require remedial measures that may be costly and/or time-consuming for us or our third-party manufacturers
to implement and that may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or
permanent closure of a manufacturing facility. Any such remedial measures imposed upon us or third parties with whom we contract
could materially harm our business.
If we or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA can impose regulatory sanctions
including, among other things, refusal to approve a pending application for a new product candidate, or revocation of a pre-existing
approval. Such an occurrence may cause our business, financial condition and results of operations to be materially harmed.
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Additionally, if supply from an approved manufacturer is interrupted, there could be a significant disruption in commercial
supply of our products. We do not currently have a backup manufacturer of our product candidate supply for clinical trials or
commercial sale. An alternative manufacturer would need to be qualified through a BLA supplement which could result in further
delay. The regulatory agencies may also require additional trials if a new manufacturer is relied upon for commercial production.
Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial
timelines.
These factors could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of our
product candidates, cause us to incur higher costs and prevent us from commercializing our products successfully. Furthermore, if our
suppliers fail to meet contractual requirements, and we are unable to secure one or more replacement suppliers capable of production
at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential revenue.
We expect to rely on third parties to conduct and supervise our clinical trials, and if these third parties perform in an
unsatisfactory manner, it may harm our business.
We expect to rely on academic research institutions and other CROs along with clinical trial sites to ensure our clinical trials are
conducted properly and on time. While we will have agreements governing their activities, we will have limited influence over their
actual performance and will control only certain aspects of our CROs’ activities. Nevertheless, we will be responsible for ensuring that
each of our clinical trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our
reliance on the CROs does not relieve us of our regulatory responsibilities.
We and our CROs are required to comply with the FDA’s and other regulatory authorities’ GCP, GMP and good laboratory
practice, or GLP, requirements for conducting, recording and reporting the results of our preclinical studies and clinical trials to assure
that the data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants
are protected. The FDA enforces these requirements through periodic inspections of study sponsors, principal investigators and
clinical trial sites. If we or our CROs fail to comply with applicable GCP requirements, the clinical data generated in our future
clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving any
marketing applications. Upon inspection, the FDA may determine that our clinical trials did not comply with GCP requirements,
which may render the data generated in those trials unreliable. In addition, our future clinical trials will require a sufficient number of
test subjects to evaluate the safety and effectiveness of our product candidates. Accordingly, if our CROs fail to comply with these
regulations or fail to recruit a sufficient number of patients, we may be required to repeat such clinical trials, which would delay the
regulatory approval process.
Our CROs are not our employees, and, except for remedies available to us under our agreements with such CROs, we are
therefore unable to directly monitor whether or not they devote sufficient time and resources to our clinical and nonclinical programs.
These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be
conducting clinical trials or other drug development activities that could harm our competitive position. If our CROs do not
successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the
clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements, or for any
other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or
successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product
candidates would be harmed, our costs could increase, and our ability to generate revenues could be delayed.
Switching or adding CROs involves substantial cost and requires extensive management time and focus. In addition, there is a
natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet
our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance
that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse
impact on our business, prospects, financial condition and results of operations.
We also expect to rely on other third parties to store and distribute our vectors and products for any clinical trials that we may
conduct. Any performance failure on the part of our distributors could delay clinical development, regulatory review or marketing
approval of our product candidates or commercialization of our products, if approved, producing additional losses and depriving us of
potential product revenue.
Collaborations with third parties, such as our recently announced collaboration with Biogen, may be important to our
business. If these collaborations are not successful, our business could be adversely affected.
We recently announced that we have entered into a collaboration with Biogen to develop, seek regulatory approval for and
commercialize gene therapy products to treat XLRS and XLRP. The collaboration agreement also provides for discovery programs
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targeting three indications whereby we will conduct discovery, research and development activities for those additional drug
candidates through the stage of clinical candidate designation, after which, Biogen may exercise an option to continue to develop, seek
regulatory approval for and commercialize the designated clinical candidate. In addition, under our manufacturing agreement with
Biogen, we granted Biogen an exclusive license to use our proprietary technology platform outside of the collaboration to make AAV
vectors for up to three available genes and three additional genes that we may approve in our discretion. An unsuccessful outcome in
pending and future clinical trials for which Biogen is responsible could be harmful to the public perception and prospects of our gene
therapy platform.
Our license relationships with Biogen and any future collaboration we enter into in the future, may pose a number of risks,
including the following:
collaborators have significant discretion in determining the efforts and resources that they will apply to these
collaborations;
collaborators may not perform their obligations as expected;
exclusivity rights we negotiate with our collaborators may be unenforceable in certain jurisdictions;
collaborators may not pursue development and commercialization of any product candidates that achieve regulatory
approval or may elect not to continue or renew development or commercialization programs based on clinical trial results,
changes in the collaborators’ strategic focus or available funding, or external factors, such as an acquisition, that divert
resources or create competing priorities;
collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or
abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for
clinical testing;
collaborators may decide not to continue the development of collaboration products and could independently develop, or
develop with third parties, products that compete directly or indirectly with our products or product candidates if the
collaborators believe that competitive products are more likely to be successfully developed or can be commercialized
under terms that are more economically attractive than ours;
product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own
product candidates or products, which may cause collaborators to cease to devote resources to the commercialization of
our product candidates;
if we grant take-over or step-in rights to a collaborator with respect to one or more of our product candidates, we may
realize diminished benefits upon the ultimate commercialization of that product candidate;
a collaborator with marketing, distribution and commercialization rights to one or more of our product candidates that
achieve regulatory approval may not commit sufficient resources to the marketing and distribution of any such product
candidate;
restrictions and commitments contained in collaborations may have the effect of preventing us from independently
undertaking development and other efforts that may appear to be attractive to us;
disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred
course of development of any product candidates, might cause delays or termination of the research, development or
commercialization of such product candidates, might lead to additional responsibilities for us with respect to such product
candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive;
collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information
in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information
or expose us to potential litigation;
collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential
liability;
collaborations may be terminated at the convenience of the collaborator or for a material breach by either party, and, if a
collaboration is terminated, we could be required to make payments to the collaborator or have our potential payments
under the collaboration reduced; and
in the event of the termination of a collaboration, we could be required to raise additional capital to pursue further
development or commercialization of the product candidates returned to us by our former collaborator.
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If our collaborations do not result in the successful development and commercialization of products or if one of our
collaborators terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under
the collaboration. If we do not receive the funding we expect under these agreements, our development of our gene therapy platform
and product candidates could be delayed and we may need additional resources to develop product candidates and gene therapy
platform. As a result of these or other factors, we may not receive the benefits that we expect from our collaborations.
In the event Biogen terminates the collaboration for a material breach by us, we will be restricted from competing with Biogen
for two years in the terminated programs with Biogen having the right, in lieu of termination, to elect to maintain the license from us
and reduce the royalties and milestones in a manner specified in the agreement.
Additionally, subject to its contractual obligations to us, if one of our collaborators is involved in a business combination, the
collaborator might deemphasize or terminate the development or commercialization of any product candidate licensed to it by us. If
one of our collaborators terminates its agreement with us, we may find it more difficult to attract new collaborators and our perception
in the business and financial communities could be adversely affected. Under a previous collaboration agreement, Genzyme has
options, which expire in 2017, to license a previous version of our manufacturing technology as it existed at the time of the license for
specified genes implicated in lysosomal storage diseases.
We may in the future determine to collaborate with other pharmaceutical and biotechnology companies for development and
potential commercialization of product candidates other than those covered by our collaboration with Biogen. These relationships or
those like them may require us to incur non-recurring and other charges, increase our near- and long-term expenditures, issue
securities that dilute our existing stockholders or disrupt our management and business. In addition, we could face significant
competition in seeking appropriate collaborators and the negotiation process is time-consuming and complex. Our ability to reach a
definitive collaboration agreement with any such new party will depend, among other things, upon our assessment of the
collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s
evaluation of a number of factors. Moreover, we may not be successful in our efforts to establish a strategic partnership or other
alternative arrangements for our product candidates because our research and development pipeline may be insufficient, our product
candidates may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our
product candidates as having the requisite potential to demonstrate safety and efficacy. If we license product candidates, we may not
be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and
company culture. We cannot be certain that, following a strategic transaction or license, we will achieve the revenues or specific net
income that justifies such transaction.
If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to
curtail the development of a product candidate, reduce or delay its development program or one or more of our other development
programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures
and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development or
commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be
available to us on acceptable terms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to
undertake the necessary development and commercialization activities, we may not be able to further develop our product candidates
or bring them to market or continue to develop our gene therapy platform and our business may be materially and adversely affected.
Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will
discover them or that our trade secrets will be misappropriated or disclosed.
Because we rely on third parties to manufacture our viral vectors and our product candidates, and because we collaborate with
various organizations and academic institutions on the advancement of our gene therapy platform, we must, at times, share trade
secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable,
material transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with our
collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These
agreements typically limit the rights of the third parties to use or disclose our confidential information, such as trade secrets.
Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other
confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated
into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in
part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would
impair our competitive position and may have a material adverse effect on our business.
In addition, these agreements typically restrict the ability of our collaborators, advisors, employees and consultants to publish
data potentially relating to our trade secrets. Our academic collaborators typically have rights to publish data, provided that we are
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notified in advance and may delay publication for a specified time in order to secure our intellectual property rights arising from the
collaboration. In other cases, publication rights are controlled exclusively by us, although in some cases we may share these rights
with other parties. We also conduct joint research and development programs that may require us to share trade secrets under the terms
of our research and development partnerships or similar agreements. Despite our efforts to protect our trade secrets, our competitors
may discover our trade secrets, either through breach of these agreements, independent development or publication of information
including our trade secrets in cases where we do not have proprietary or otherwise protected rights at the time of publication. A
competitor’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business.
Risks related to commercialization of our product candidates
If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell
our product candidates, we may be unable to generate any revenues.
We currently have no sales and marketing organization and have no experience selling and marketing our product candidates.
To successfully commercialize any products that may result from our development programs, we will need to develop these
capabilities, either on our own or with others. The establishment and development of our own sales force or the establishment of a
contract sales force to market any products we may develop will be expensive and time-consuming, particularly to the extent that we
seek to commercialize any product for an indication, such as wet AMD, that has a patient population significantly larger than those
addressed by our current lead product candidates, and could delay any product launch. Moreover, we cannot be certain that we will be
able to successfully develop this capability. We may enter into collaborations with other entities to utilize their mature marketing and
distribution capabilities, but we may be unable to enter into marketing agreements on favorable terms, if at all. If our future
collaborators do not commit sufficient resources to commercialize our future products, if any, and we are unable to develop the
necessary marketing capabilities on our own, we will be unable to generate sufficient product revenue to sustain our business. We will
be competing with many companies that currently have extensive and well-funded marketing and sales operations to recruit, hire, train
and retain marketing and sales personnel. We also face competition in our search for third parties to assist us with the sales and
marketing efforts of our product candidates. Without an internal team or the support of a third party to perform marketing and sales
functions, we may be unable to compete successfully against these more established companies.
We face intense competition and rapid technological change and the possibility that our competitors may develop therapies
that are more advanced or effective than ours, which may adversely affect our financial condition and our ability to successfully
commercialize our product candidates.
The biotechnology and pharmaceutical industries are characterized by intense and rapidly changing competition to develop new
technologies and proprietary products, and any product candidates that we successfully develop and commercialize will have to
compete with existing therapies and new therapies that may become available in the future. While we believe that our proprietary
technology estate and scientific expertise in the gene therapy field provide us with competitive advantages, we face potential
competition from many different sources, including larger and better-funded pharmaceutical, specialty pharmaceutical and
biotechnology companies, as well as from academic institutions and governmental agencies and public and private research
institutions that may develop potentially competitive products or technologies.
Currently there are no approved products for any of our lead orphan ophthalmology indications of XLRS, ACHM and XLRP.
We believe the key competitive factors that will affect the success of our product candidates, if approved, are likely to be their
efficacy, safety, convenience of administration and delivery, price, the level of generic competition and the availability of
reimbursement from government and other third-party payors.
We believe there are a number of companies that are working on AAV-based gene therapy technology and that there are
companies developing gene therapies in the field of orphan ophthalmology, on which we are currently focused, which have programs
that are at the clinical and pre-clinical stages. Other companies could also potentially seek to enter this field.
Many of our potential competitors, alone or with their strategic partners, have substantially greater financial, technical and
human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining
FDA and other regulatory approvals of treatments and the commercialization of those treatments. To the extent that we develop
product candidates for indications with larger patient populations, such as wet AMD, we expect to experience particularly intense
competition from larger and better funded pharmaceutical companies. Mergers and acquisitions in the biotechnology and
pharmaceutical industries may result in even more resources being concentrated among a smaller number of our competitors. Our
commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more
effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop.
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Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for
ours, which could result in our competitors establishing a strong market position before we are able to enter the market.
The insurance coverage and reimbursement status of newly-approved products is uncertain. Failure to obtain or maintain
adequate coverage and reimbursement for our products, if approved, could limit our ability to market those products and decrease
our ability to generate revenue.
We expect the cost of a single administration of gene therapy products such as those we are developing to be substantial, when
and if they achieve regulatory approval. We expect that coverage and reimbursement by governmental and private payors will be
essential for most patients to be able to afford these treatments. Accordingly, sales of our product candidates will depend substantially,
both domestically and abroad, on the extent to which the costs of our product candidates will be paid by health maintenance, managed
care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government authorities, private health
coverage insurers and other third-party payors. Coverage and reimbursement by a third-party payor may depend upon a number of
factors, including the third-party payor’s determination that use of a product is:
a covered benefit under its health plan;
safe, effective and medically necessary;
appropriate for the specific patient;
cost-effective; and
neither experimental nor investigational.
Obtaining coverage and reimbursement approval for a product from governmental and private payors is a time-consuming and
costly process that could require us to provide to the payor supporting scientific, clinical and cost-effectiveness data for the use of our
products. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. If coverage
and reimbursement are not available, or is available only to limited levels, we may not be able to successfully commercialize our
product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to
establish or maintain pricing sufficient to realize a sufficient return on our investment.
There is significant uncertainty related to third-party coverage and reimbursement of newly approved products. In the United
States, third-party payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an important
role in determining the extent to which new drugs and biologics will be covered and reimbursed. The Medicare and Medicaid
programs increasingly are used as models for how private payors and other governmental payors develop their coverage and
reimbursement policies for drugs and biologics. Currently, no gene therapy products have been approved for coverage and
reimbursement by the Centers for Medicare & Medicaid Services, or CMS, the agency responsible for administering the Medicare
program, and it is difficult to predict what CMS will decide with respect to coverage and reimbursement for fundamentally novel
products such as ours, as there is no body of established practices and precedents for these new products. Moreover, reimbursement
agencies in Europe may be more conservative than CMS. For example, a number of cancer drugs have been approved for
reimbursement in the United States and have not been approved for reimbursement in certain European countries. It is difficult to
predict at this time what third-party payors will decide with respect to the coverage and reimbursement for our product candidates.
Outside the United States, international operations are generally subject to extensive governmental price controls and other
market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada, and other countries has
and will continue to put pressure on the pricing and usage of our product candidates. In many countries, the prices of medical products
are subject to varying price control mechanisms as part of national health systems. In general, the prices of medicines under such
systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for medical
products, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could
restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the
reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially
reasonable revenues and profits.
Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare
costs may cause such organizations to limit both coverage and the level of reimbursement for new products approved and, as a result,
they may not cover or provide adequate payment for our product candidates. We expect to experience pricing pressures in connection
with the sale of any of our product candidates, due to the trend toward managed healthcare, the increasing influence of health
maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly
prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are
being erected to the entry of new products.
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Negative public opinion and increased regulatory scrutiny of gene therapy and genetic research may damage public
perception of our product candidates or adversely affect our ability to conduct our business or obtain regulatory approvals for our
product candidates.
Gene therapy remains a novel technology, with no gene therapy product approved to date in the United States and only one gene
therapy product approved to date in Europe. Public perception may be influenced by claims that gene therapy is unsafe, and gene
therapy may not gain the acceptance of the public or the medical community. In particular, our success will depend upon physicians
specializing in the treatment of those diseases that our product candidates target prescribing treatments that involve the use of our
product candidates in lieu of, or in addition to, existing treatments they are already familiar with and for which greater clinical data
may be available. More restrictive government regulations or negative public opinion would have a negative effect on our business or
financial condition and may delay or impair the development and commercialization of our product candidates or demand for any
products we may develop. For example, trials using early versions of lentiviral vectors, which integrate with, and thereby alter, the
host cell’s DNA, have led to several well-publicized adverse events, including reported cases of leukemia. Although none of our
current product candidates utilize lentiviral vectors, our product candidates use a viral delivery system. Adverse events in our clinical
trials, even if not ultimately attributable to our product candidates, and the resulting publicity could result in increased governmental
regulation, unfavorable public perception, potential regulatory delays in the testing or approval of our product candidates, stricter
labeling requirements for those product candidates that are approved and a decrease in demand for any such product candidates.
Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.
In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For
example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education
Reconciliation Act, or PPACA, was passed, which substantially changes the way health care is financed by both governmental and
private insurers, and significantly impacts the U.S. pharmaceutical industry. The PPACA, among other things, subjects biologic
products to potential competition by lower-cost biosimilars, addresses a new methodology by which rebates owed by manufacturers
under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increases
the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to
individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of certain branded
prescription drugs, and subjects additional drugs to lower pricing under the 340B drug pricing program by adding new entities to the
program.
In addition, other legislative changes have been proposed and adopted in the United States since the PPACA was enacted. On
August 2, 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions by Congress. A Joint
Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years
2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government
programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect on
April 1, 2013. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could
limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced
demand for our product candidates or additional pricing pressures.
The commercial success of any of our product candidates will depend upon its degree of market acceptance by physicians,
patients, third-party payors and others in the medical community.
Ethical, social and legal concerns about gene therapy and genetic research could result in additional regulations restricting or
prohibiting the products and processes we may use. Even with the requisite approvals from the FDA in the United States and other
government bodies internationally, the commercial success of our product candidates will depend in part on the medical community’s,
patients’, and third-party payors’ acceptance of gene therapy products in general, and our product candidates in particular, as
medically necessary, cost-effective, and safe. Any product that we bring to the market may not gain market acceptance by physicians,
patients, third-party payors and others in the medical community. If these products do not achieve an adequate level of acceptance, we
may not generate significant product revenue and may not become profitable. The degree of market acceptance of our product
candidates, if approved for commercial sale, will depend on a number of factors, including:
the efficacy and safety of such product candidates as demonstrated in clinical trials;
the potential and perceived advantages of product candidates over alternative treatments;
the clinical indications for which the product candidate is approved;
the safety of product candidates seen in a broader patient group, including its use outside the approved indications;
the prevalence and severity of any side effects;
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product labeling or product insert requirements of the FDA or other regulatory authorities, including any limitations or
warnings contained in a product’s approved labeling;
the cost of treatment relative to alternative treatments;
relative convenience and ease of administration;
the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
the strength of marketing and distribution support;
the timing of market introduction of competitive products;
publicity concerning our products or competing products and treatments; and
sufficient third-party insurance coverage and reimbursement.
Even if a potential product displays a favorable efficacy and safety profile in preclinical studies and clinical trials, market
acceptance of the product will not be fully known until after it is launched. Our efforts to educate the medical community and third-
party payors on the benefits of the product candidates may require significant resources and may never be successful. Such efforts to
educate the marketplace may require more resources than are required by the conventional technologies marketed by our competitors.
If any of our product candidates is approved but fails to achieve market acceptance among physicians, patients, or health care payors,
we will not be able to generate significant revenues from such product, which could have a material adverse effect on our business,
prospects, financial condition and results of operations.
If we obtain approval to commercialize our product candidates outside of the United States, a variety of risks associated with
international operations could materially adversely affect our business.
If any of our product candidates are approved for commercialization, we may enter into agreements with third parties to market
them on a worldwide basis or in more limited geographical regions. We expect that we will be subject to additional risks related to
entering into international business relationships, including:
different regulatory requirements for approval of drugs and biologics in foreign countries;
the potential for so-called parallel importing, which is what happens when a local seller, faced with high or higher local
prices, opts to import goods from a foreign market (with low or lower prices) rather than buying them locally;
challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not
respect and protect intellectual property rights to the same extent as the United States;
unexpected changes in tariffs, trade barriers and regulatory requirements;
economic weakness, including inflation, or political instability in particular foreign economies and markets;
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other
obligations incident to doing business in another country;
difficulties staffing and managing foreign operations;
workforce uncertainty in countries where labor unrest is more common than in the United States;
potential liability under the Foreign Corrupt Practices Act of 1977 or comparable foreign regulations;
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including
earthquakes, typhoons, floods and fires.
These and other risks associated with our international operations may materially adversely affect our ability to attain or
maintain profitable operations.
We may not be successful in our efforts to identify or discover additional product candidates.
The success of our business depends primarily upon our ability to identify, develop and commercialize product candidates based
on our gene therapy platform. Although certain of our product candidates are currently in clinical or preclinical development, we may
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fail to identify other potential product candidates for clinical development for a number of reasons. For example, our research
methodology may be unsuccessful in identifying potential product candidates or our potential product candidates may be shown to
have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing
approval.
If any of these events occur, we may be forced to abandon our development efforts with respect to a particular product
candidate, which would have a material adverse effect on our business and could potentially cause us to cease operations. Research
programs to identify new product candidates require substantial technical, financial and human resources. We may focus our efforts
and resources on potential programs or product candidates that ultimately prove to be unsuccessful.
Risks related to our business operations
We incur significant increased costs as a result of operating as a public company, and our management devotes substantial
time to new compliance initiatives.
As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we did
not incur as a private company. In addition, the Sarbanes-Oxley Act, as well as rules subsequently implemented by the Securities and
Exchange Commission, or SEC, and The NASDAQ Global Market impose various requirements on public companies. In July 2010,
the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant
corporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional
rules and regulations in these areas. Recent legislation permits us, as a smaller “emerging growth company,” to implement many of
these requirements over a longer period and up to five years from the date of our initial public offering, which was March 26, 2014.
We are taking advantage of the flexibility accorded to us by this legislation but cannot guarantee that we will not be required to
implement these requirements sooner than budgeted or planned and thereby incur unexpected expenses. Stockholder activism, the
current political environment and the current high level of government intervention and regulatory reform may lead to substantial new
regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our
business in ways we cannot currently anticipate.
We may not be successful in complying with these obligations, and compliance with these obligations could be time-consuming
and expensive. If these requirements divert the attention of our management and personnel from other business concerns, they could
have a material adverse effect on our business, financial condition and results of operations. Moreover, these rules and regulations will
increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we
expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability
insurance, which in turn could make it more difficult for us to attract and retain qualified members of our board of directors. The
increased costs will decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business
or increase the prices of our products or services.
We have identified material weaknesses in our internal control over financial reporting, and if we are unable to maintain
effective internal control over financial reporting, investors could lose confidence in our financial statements and our company
which could have a material adverse effect on our business and our stock price.
Our management previously determined that as of June 30, 2014 and 2013, we had material weaknesses in our internal control
over financial reporting, which related to the design and operation of our closing and financial reporting processes and our accounting
for debt, equity and convertible instruments. Management has determined that as of June 30, 2015, the material weakness in our
internal control over financial reporting related to the design and operation of our closing and financial reporting processes still
existed. These material weaknesses in our internal control over financial reporting are primarily due to the fact that we did not have
the appropriate resources with the appropriate level of experience and technical expertise to oversee our closing and financial
reporting processes and to address the accounting and financial reporting requirements related to our issuances of convertible notes,
preferred stock warrants, stock options, preferred stock and preferred stock purchase rights.
If we fail to fully remediate material weaknesses or fail to maintain effective internal controls in the future, it could result in a
material misstatement of our financial statements, which could cause investors to lose confidence in our financial statements and our
company or cause our stock price to decline. Our independent registered public accounting firm has not assessed the effectiveness of
our internal control over financial reporting and, under the JOBS Act, will not be required to provide an attestation report on the
effectiveness of our internal control over financial reporting so long as we qualify as an emerging growth company, which may
increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected.
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If we are unable to manage expected growth in the scale and complexity of our operations, our performance may suffer.
If we are successful in executing our business strategy, we will need to expand our managerial, operational, financial and other
systems and resources to manage our operations, continue our research and development activities, and, in the longer term, build a
sales force and commercial infrastructure to support commercialization of any of our product candidates that are approved for sale.
Future growth would impose significant added responsibilities on members of management. It is possible that our management,
finance, development personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need
to effectively manage our operations, growth and products requires that we continue to develop more robust business processes and
improve our systems and procedures in each of these areas and to attract and retain sufficient numbers of talented employees. We may
be unable to successfully implement these tasks on a larger scale and, accordingly, may not achieve our research, development and
growth goals.
We may enter into or seek to enter into business partnerships, combinations and/or acquisitions which may be difficult to
integrate, disrupt our business, divert management attention or dilute stockholder value.
A key element of our strategy is to enter into business partnerships, combinations and/or acquisitions. We have limited
experience in making acquisitions, which are typically accompanied by a number of risks, including:
the difficulty of integrating the operations and personnel of the acquired companies;
the potential disruption of our ongoing business and distraction of management;
potential unknown liabilities and expenses;
the failure to achieve the expected benefits of the combination or acquisition;
the maintenance of acceptable standards, controls, procedures and policies; and
the impairment of relationships with employees as a result of any integration of new management and other personnel.
If we are not successful in completing acquisitions that we may pursue in the future, we would be required to reevaluate our
business strategy and we may have incurred substantial expenses and devoted significant management time and resources in seeking
to complete the acquisitions. In addition, we could use substantial portions of our available cash as all or a portion of the purchase
price, or we could issue additional securities as consideration for these acquisitions, which could cause our stockholders to suffer
significant dilution.
Our future success depends on our ability to retain key employees, consultants and advisors and to attract, retain and
motivate qualified personnel.
We are highly dependent on our executive officers, the loss of whose services may adversely impact the achievement of our
objectives. Recruiting and retaining other qualified employees, consultants and advisors for our business, including scientific and
technical personnel, will also be critical to our success. There is currently a shortage of skilled executives and scientific personnel in
our industry, which is likely to continue. As a result, competition for skilled personnel is intense and the turnover rate can be high. We
may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical and
biotechnology companies for individuals with similar skill sets. In addition, failure to succeed in preclinical studies or clinical trials
may make it more challenging to recruit and retain qualified personnel. The inability to recruit or loss of the services of any executive,
key employee, consultant or advisor may impede the progress of our research, development and commercialization objectives.
In order to induce valuable employees to remain at AGTC, in addition to salary and cash incentives, we have provided stock
options that vest over time. The value to employees of stock options that vest over time may be significantly affected by movements in
our stock price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other
companies.
Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate
their employment with us. The loss of the services of any of our executive officers or other key employees and our inability to find
suitable replacements could potentially harm our business, prospects, financial condition or results of operations. We do not maintain
“key man” insurance policies on the lives of these individuals or any of our other employees. Our success also depends on our ability
to continue to attract, retain and motivate highly skilled junior, mid-level, and senior managers as well as junior, mid-level, and senior
scientific and medical personnel.
Many of the other biotechnology and pharmaceutical companies that we compete against for qualified personnel have greater
financial and other resources, different risk profiles and a longer history in the industry than we do. They may also provide more
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diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high quality
candidates than what we can offer. If we are unable to continue to attract and retain high quality personnel, the rate and success at
which we can discover, develop and commercialize product candidates will be limited.
Our employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper
activities.
We are exposed to the risk that our employees, CROs, principal investigators, consultants and commercial partners may engage
in fraudulent conduct or other illegal activity or may fail to disclosure unauthorized activities to us. Misconduct by these parties could
include intentional, reckless and/or negligent failures to comply with:
the laws and regulations of the FDA and non-U.S. regulators, including those laws requiring the reporting of true,
complete and accurate information to such regulatory bodies;
manufacturing standards we have established;
healthcare fraud and abuse laws and regulations in the United States and similar foreign laws; or
laws requiring the accurate reporting of financial information or data or the disclosure of unauthorized activities to us.
In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations
intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or
prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other
business arrangements. Such misconduct could also involve the improper use of information obtained in the course of clinical trials,
which could result in regulatory sanctions and cause serious harm to our reputation. We have adopted a code of conduct applicable to
all of our employees, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect
and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from
governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such
actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a
significant impact on our business, including the imposition of significant fines or other sanctions.
We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws and health
information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face
substantial penalties.
Our operations may be directly, or indirectly through our prescribers, customers and purchasers, subject to various federal and
state fraud and abuse laws. If we obtain FDA approval for any of our product candidates and begin commercializing those products in
the United States, many of these laws will become more directly applicable to our operations, including, without limitation, the federal
Health Care Program Anti-Kickback Statute, the federal civil and criminal False Claims Acts and Physician Payments Sunshine Act
and regulations. These laws may impact, among other things, our proposed sales, marketing and educational programs. In addition, we
may be subject to patient privacy laws by both the federal government and the states in which we conduct our business. The laws that
may affect our ability to operate include, but are not limited to:
the federal Health Care Program Anti-Kickback Statute, which prohibits, among other things, persons or entities from
knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or
rebate), directly or indirectly, overtly or covertly, in cash or in kind in return for, the purchase, recommendation, leasing
or furnishing of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid
programs;
federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things,
individuals or entities from knowingly presenting, or causing to be presented, claims for payment or approval from
Medicare, Medicaid, or other government payers that are false or fraudulent;
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal
statutes that prohibit a person from knowingly and willfully executing a scheme or from making false or fraudulent
statements to defraud any healthcare benefit program, regardless of the payor (e.g., public or private);
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its
implementing regulations, and as amended again by the final HIPAA omnibus rule, Modifications to the HIPAA Privacy,
Security, Enforcement, and Breach Notification Rules Under HITECH and the Genetic Information Nondiscrimination
Act; Other Modifications to HIPAA, published in January 2013, which imposes certain requirements relating to the
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privacy, security and transmission of individually identifiable health information without appropriate authorization by
entities subject to the rule, such as health plans, health care clearinghouses and health care providers;
federal transparency laws, including the federal Physician Payment Sunshine Act that requires disclosure of payments and
other transfers of value provided to physicians and teaching hospitals, and ownership and investment interests held by
physicians and other healthcare providers and their immediate family members and applicable group purchasing
organizations;
the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or the
Affordable Care Act, and its implementing regulations, which may impact, among other things, reimbursement rates by
federal health care programs and commercial insurers;
federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that
potentially harm consumers;
federal government price reporting laws, which require us to calculate and report complex pricing metrics to government
programs, where such reported prices may be used in the calculation of reimbursement and/or discounts on our marketed
drugs, when and if approved; participation in these programs and compliance with the applicable requirements may
subject us to potentially significant discounts on our products, when and if approved, increased infrastructure costs and
potentially limit our ability to offer certain marketplace discounts; and
state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to
items or services reimbursed by any third-party payor, including commercial insurers; state laws that require
pharmaceutical companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance
guidance promulgated by the federal government, or otherwise restrict certain payments that may be made to healthcare
providers and other potential referral sources; state laws that require drug manufacturers to report information related to
payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state
laws governing the privacy and security of health information in certain circumstances, many of which differ from each
other in significant ways and may not have the same effect, thus complicating compliance efforts in certain circumstances,
such as specific disease states.
In addition, any sale of our products or product candidates, if commercialized outside of the United States, may also subject us
to foreign laws governing prescription drug marketing and fraud and abuse, including laws similar to the U.S. healthcare laws
mentioned above. Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is
possible that some of our business activities could be subject to challenge under one or more of such laws. In addition, recent health
care reform legislation has strengthened these laws. For example, the PPACA, among other things, amends the intent requirements of
the federal Anti-Kickback Statute and the criminal statute governing healthcare fraud. A person or entity can now be found guilty of
violating the Anti-Kickback Statute and the federal criminal healthcare fraud statute without actual knowledge of the statute or
specific intent to violate it. In addition, the PPACA provides that the government may assert that a claim including items or services
resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False
Claims Act.
If our operations are found to be in violation of any of the laws described above or any other governmental regulations that
apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in
government health care programs, such as Medicare and Medicaid, disgorgement, contractual damages, reputational harm, diminished
profits and future earnings, imprisonment, and the curtailment or restructuring of our operations, any of which could adversely affect
our ability to operate our business and our results of operations.
If the use of our product candidates harms patients, we could be subject to costly and damaging product liability claims.
The use of our product candidates in clinical trials and the sale of any products for which we obtain marketing approval exposes
us to the risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare providers,
pharmaceutical companies or others selling or otherwise coming into contact with our products. For example, we may be sued if any
product candidate we develop allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing,
marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to
warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties. Claims could also be asserted under
state consumer protection acts. If we cannot successfully defend against product liability claims, we could incur substantial liability
and costs. In addition, regardless of merit or eventual outcome, product liability claims may result in:
impairment of our business reputation;
withdrawal of clinical trial participants;
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initiation of investigations by regulators;
costs due to related litigation;
distraction of management’s attention from our primary business;
substantial monetary awards to trial participants, patients or other claimants;
loss of revenue;
exhaustion of any available insurance and our capital resources;
the inability to commercialize our product candidates; and
decreased demand for our product candidates, if approved for commercial sale.
Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product
liability claims could prevent or inhibit the commercialization of products we develop. While we believe our product liability
insurance coverage is sufficient in light of our current clinical programs, The amount of the product liability coverage that we carry
varies from time to time, depending on a number of factors, the most significant of which are the nature and scope of the clinical trials
in which we are engaged and the number of patients being treated with our product candidates in these trials. This amount may
increase or decrease in the future. We may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to
protect us against losses due to liability and any claim that may be brought against us could result in a court judgment or settlement in
an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. If and
when we obtain marketing approval for product candidates, we intend to expand our insurance coverage to include the commercial
sale of our products; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in
adequate amounts. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which
we have no coverage. A successful product liability claim or series of claims brought against us could cause our stock price to decline
and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or
penalties or incur costs that could have a material adverse effect on the success of our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory
procedures and the handling, use, storage, treatment, manufacture and disposal of hazardous materials and wastes. Our operations
involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce
hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. Although we believe
that our procedures for using, handling, storing and disposing of these materials comply with legally prescribed standards, we cannot
eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of
hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could
incur significant costs associated with civil or criminal fines and penalties.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our
employees resulting from the use of hazardous materials or other work-related injuries, this insurance may not provide adequate
coverage against potential liabilities. In addition, we may incur substantial costs in order to comply with current or future
environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research,
development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or
other sanctions.
We rely on our relationship with a professional employer organization for our human relations function and as a co-
employer of our personnel, and if that party failed to perform its responsibilities under that relationship, our relations with our
employees could be damaged and we could incur liabilities that could have a material adverse effect on our business.
All of our personnel, including our executive officers, are co-employees of AGTC and a professional employer organization,
TriNet HR Corporation, or TriNet. Under the terms of our arrangement, TriNet is the formal employer of all of our personnel, and is
responsible for administering all payroll, including tax withholding, and providing health insurance and other benefits for these
individuals. We reimburse TriNet for these costs, and pay TriNet an administrative fee for its services. If TriNet fails to comply with
applicable laws, or its obligations under this arrangement, our relationship with our employees could be damaged. We could, under
certain circumstances, be held liable for a failure by TriNet to appropriately pay, or withhold and remit required taxes from payments
to, our employees. In such a case, our potential liability could be significant and could have a material adverse effect on our business.
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We or the third parties upon whom we depend may be adversely affected by natural disasters and our business continuity and
disaster recovery plans may not adequately protect us from a serious disaster.
Substantially all of our operations are conducted from our headquarters located near Gainesville, Florida. Hurricanes or other
natural disasters could severely disrupt our operations, damage our research facilities or destroy stored research materials that could be
difficult to replace, and otherwise have a material adverse effect on our business, results of operations, financial condition and
prospects. In addition, despite the implementation of security measures, our internal computer systems and those of our current and
any future CROs and other contractors and consultants and collaborators are vulnerable to damage from computer viruses,
unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. If such an event were to occur and
cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations.
If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters,
that damaged critical infrastructure or that otherwise disrupted our operations or the operations of our third-party contract
manufacturer, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. For
example, the loss of clinical trial data from our clinical trials could result in delays in our regulatory approval efforts and significantly
increase our costs to recover or reproduce the data. If our security measures, disaster recovery and business continuity plans are not
adequate in the event of such a breach, serious disaster or similar event, we could incur substantial expenses and the further
development and commercialization of our product candidates could be delayed, which could have a material adverse effect on our
business.
Interruptions in the supply of product or inventory loss may adversely affect our operating results and financial condition.
Our product candidates are manufactured using technically complex processes requiring specialized facilities, highly specific
raw materials and other production constraints. The complexity of these processes, as well as strict company and government
standards for the manufacture and storage of our products, subjects us to production risks. While product batches released for use in
clinical trials or for commercialization undergo sample testing, some defects may only be identified following product release. In
addition, process deviations or unanticipated effects of approved process changes may result in these intermediate products not
complying with stability requirements or specifications. Most of our product candidates must be stored and transported at temperatures
within a certain range. If these environmental conditions deviate, our product candidates’ remaining shelf-lives could be impaired or
their efficacy and safety could become adversely affected, making them no longer suitable for use. The occurrence or suspected
occurrence of production and distribution difficulties can lead to lost inventories, and in some cases product recalls, with
consequential reputational damage and the risk of product liability. The investigation and remediation of any identified problems can
cause production delays, substantial expense, lost sales and delays of new product launches. Any interruption in the supply of finished
products or the loss thereof could hinder our ability to timely distribute our products and satisfy customer demand. Any unforeseen
failure in the storage of the product or loss in supply could delay our clinical trials and, if our product candidates are approved, result
in a loss of our market share and negatively affect our revenues and operations.
We may use our financial and human resources to pursue a particular research program or product candidate and fail to
capitalize on programs or product candidates that may be more profitable or for which there is a greater likelihood of success.
Because we have limited resources, we may forego or delay pursuit of opportunities with certain programs or product candidates
or for indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to
capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and
development programs for product candidates may not yield any commercially viable products. If we do not accurately evaluate the
commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate
through strategic collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us
to retain sole development and commercialization rights to such product candidate, or we may allocate internal resources to a product
candidate in a therapeutic area in which it would have been more advantageous to enter into a partnering arrangement.
Our ability to use our net operating loss carryforwards may be subject to limitation.
Under Section 382 of the Internal Revenue Code of 1986, as amended, substantial changes in our ownership may limit the
amount of net operating loss carryforwards that could be utilized annually in the future to offset our taxable income. Specifically, this
limitation may arise in the event of a cumulative change in ownership of our company of more than 50% within a three-year period.
Any such annual limitation may significantly reduce the utilization of our net operating loss carryforwards before they expire. We
believe it is likely that transactions that have occurred in the past and other transactions that may occur in the future, could trigger an
ownership change pursuant to Section 382, which could limit the amount of net operating loss carryforwards that could be utilized
annually in the future to offset our taxable income, if any.
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Cyber attacks or other breaches of network or other information technology security could have an adverse effect on our
business.
Cyber attacks or other breaches of network or information technology security may cause equipment failures or disruptions to
our operations. While, to date, we have not been subject to cyber attacks or other cyber incidents which, individually or in the
aggregate, have been material to our operations or financial condition, the preventative actions we take to prevent or detect the risk of
cyber incidents and protect our information technology and networks may be insufficient to prevent or detect a major cyber attack in
the future. If we fail to prevent the theft of valuable information such as financial data, sensitive information about the us, our patients
or our intellectual property, or if we fail to protect the privacy of patient and employee confidential data against breaches of network
or information technology security, it would result in damage to our reputation, which could adversely impact the confidence of our
partners, investors and employees. Any of these occurrences could result in a material adverse effect on our results of operations and
financial condition.
Risks related to our intellectual property
If we are unable to obtain and maintain patent protection for our technology and products or if the scope of the patent
protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or
identical to ours, and our ability to successfully commercialize our technology and products may be impaired.
Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries
with respect to our proprietary technology and products. We seek to protect our proprietary position by filing patent applications in the
United States and abroad related to our novel technologies and product candidates.
The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or
desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable
aspects of our research and development output before it is too late to obtain patent protection. Moreover, in some circumstances, we
do not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering
technology that we license from third parties. Therefore, these patents and applications may not be prosecuted and enforced in a
manner consistent with the best interests of our business.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and
factual questions and has in recent years been the subject of much litigation. In addition, the laws of foreign countries may not protect
our rights to the same extent as the laws of the United States. For example, European patent law restricts the patentability of methods
of treatment of the human body more than United States law does. Publications of discoveries in the scientific literature often lag
behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18
months after filing, or in some cases not at all. Therefore, we cannot know with certainty whether we were the first to make the
inventions claimed in our owned or licensed patents or pending patent applications, or that we were the first to file for patent
protection of such inventions. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are
highly uncertain. Our pending and future patent applications may not result in issued patents that protect our technology or products,
in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. Changes in
either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents
or narrow the scope of our patent protection.
Moreover, we may be subject to a third-party preissuance submission of prior art to the United States Patent and Trademark
Office, or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings
challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation
could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and
compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without
infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications
is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product
candidates.
Even if our owned and licensed patent applications issue as patents, they may not issue in a form that will provide us with any
meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our
competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in
a non-infringing manner.
In addition, the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and
licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss
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of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which
could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration
of the patent protection of our technology and products. Given the amount of time required for the development, testing and regulatory
review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are
commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from
commercializing products similar or identical to ours.
Third parties may initiate legal proceedings alleging claims of intellectual property infringement, the outcome of which
would be uncertain and could have a material adverse effect on the success of our business.
Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties.
There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property
rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and inter
partes reexamination proceedings before the United States Patent and Trademark Office and corresponding foreign patent offices.
Numerous United States and foreign issued patents and pending patent applications, which are owned by third parties, exist in the
fields in which we are pursuing development candidates. As the biotechnology and pharmaceutical industries expand and more patents
are issued, the risk increases that our product candidates may be subject to claims of infringement of the patent rights of third parties.
Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party
patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the
use or manufacture of our product candidates. Because patent applications can take many years to issue, there may be currently
pending patent applications that may later result in issued patents that our product candidates may infringe. In addition, third parties
may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were
held by a court of competent jurisdiction to cover the manufacturing process of any of our product candidates, any molecules formed
during the manufacturing process or any final product itself, the holders of any such patents may be able to block our ability to
commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire.
Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, methods
for manufacture or methods of use, including combination therapy, the holders of any such patents may be able to block our ability to
develop and commercialize the applicable product candidate unless we obtained a license or until such patent expires. In either case,
such a license may not be available on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be
non-exclusive, thereby giving our competitors access to the same technologies licensed to us.
Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to
further develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would
involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a
successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for
willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be
impossible or require substantial time and monetary expenditure.
We may not be successful in obtaining or maintaining necessary rights to gene therapy product components and processes
for our development pipeline through acquisitions and in-licenses.
Presently we have rights to the intellectual property to develop our gene therapy product candidates. Because a key element of
our business strategy is to pursue in-licensing and intellectual property acquisitions for additional product candidates that may require
the use of proprietary rights held by third parties, the growth of our business will likely depend in part on our ability to acquire, in-
license or use these proprietary rights. In addition, our product candidates may require specific formulations to work effectively and
efficiently and these rights may be held by others. We may be unable to acquire or in-license any compositions, methods of use,
processes or other third-party intellectual property rights from third parties that we identify on terms that we find acceptable, or at all.
The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established
companies are also pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive.
These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical
development and commercialization capabilities.
For example, we sometimes collaborate with United States and foreign academic institutions to accelerate our preclinical
research or development under written agreements with these institutions. Typically, these institutions provide us with an option to
negotiate a license to any of the institution’s rights in technology resulting from the collaboration. Regardless of such right of first
negotiation for intellectual property, we may be unable to negotiate a license within the specified time frame or under terms that are
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acceptable to us. If we are unable to do so, the institution may offer the intellectual property rights to other parties, potentially
blocking our ability to pursue our program.
In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be
unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our
investment. If we are unable to successfully obtain rights to required third-party intellectual property rights, our business, financial
condition and prospects for growth could suffer.
If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third
parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are
important to our business.
Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific
issues and is complicated by the rapid pace of scientific discovery in our industry. We are a party to intellectual property license
agreements with the University of Florida Research Foundation, an affiliate of the University of Florida, Johns Hopkins University
and the UAB Research Foundation, an affiliate of The University of Alabama at Birmingham, each of which is important to our
business, and we expect to enter into additional license agreements in the future. Our existing license agreements impose, and we
expect that future license agreements will impose, various diligence, milestone payment, royalty and other obligations on us. If we fail
to comply with our obligations under these agreements, or we are subject to a bankruptcy, the licensor may have the right to terminate
the license, in which event we would not be able to market products covered by the license.
We may need to obtain licenses from third parties to advance our research or allow commercialization of our product
candidates, and we have done so from time to time. It is possible that we may fail to obtain any of these licenses at a reasonable cost
or on reasonable terms, if at all. In that event, we may be required to expend significant time and resources to develop or license
replacement technology. If we are unable to do so, we may be unable to develop or commercialize the affected product candidates,
which could harm our business significantly. We cannot provide any assurances that third-party patents do not exist which might be
enforced against our current product candidates or future products, resulting in either an injunction prohibiting our sales, or, with
respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties.
In many cases, patent prosecution of our licensed technology is controlled solely by the licensor. If our licensors fail to obtain
and maintain patent or other protection for the proprietary intellectual property we license from them, we could lose our rights to the
intellectual property or our exclusivity with respect to those rights, and our competitors could market competing products using the
intellectual property. In certain cases, we control the prosecution of patents resulting from licensed technology. In the event we breach
any of our obligations related to such prosecution, we may incur significant liability to our licensing partners. Disputes may arise
regarding intellectual property subject to a licensing agreement, including:
the scope of rights granted under the license agreement and other interpretation-related issues;
the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the
licensing agreement;
the sublicensing of patent and other rights under our collaborative development relationships;
our diligence obligations under the license agreement and what activities satisfy those diligence obligations;
the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors
and us and our partners; and
the priority of invention of patented technology.
If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing
arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property or the patents or other
intellectual property of our licensors, which could be expensive, time-consuming and ultimately unsuccessful.
Competitors may infringe our patents or other intellectual property or the patents or other intellectual property of our licensors.
In response, we may be required to file infringement claims, which can be expensive and time-consuming. Any claims we assert
against perceived infringers could provoke these parties to assert counterclaims against us, alleging that we infringe their patents. In
addition, in a patent infringement proceeding, a court may decide that a patent of ours or our licensors is invalid or unenforceable, in
whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the
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grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceeding could put
one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not
issuing.
Interference proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions
with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the
related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party
does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and, even
if successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent, alone
or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect
those rights as fully as in the United States.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is
a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be
public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or
investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock.
Issued patents covering our product candidates could be found invalid or unenforceable if challenged in court.
If we or one of our licensing partners initiate legal proceedings against a third party to enforce a patent covering one of our
product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid or unenforceable. In
patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a
validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or
non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the
patent withheld relevant information from the United States Patent and Trademark Office, or made a misleading statement, during
prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the
context of litigation. Such mechanisms include re-examination, post grant review, and equivalent proceedings in foreign jurisdictions.
Such proceedings could result in the revocation of or amendment to our patents in such a way that they no longer cover our product
candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity
question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware
during prosecution. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we could lose at least part, and
perhaps all, of the patent protection on one or more of our product candidates. Such a loss of patent protection could have a material
adverse impact on our business.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed
confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their
former employers.
We employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies,
including our competitors or potential competitors. Although we try to ensure that our employees, consultants and independent
contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or
our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property,
including trade secrets or other proprietary information, of any of our employee’s former employer or other third parties. Litigation
may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we
may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful in
defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
We may be subject to claims that former employees, collaborators or other third parties have an ownership interest in our
patents or other intellectual property. While it is our policy to require our employees and contractors who may be involved in the
development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in
executing such an agreement with each party who in fact develops intellectual property that we regard as our own. We could be
subject to ownership disputes arising, for example, from conflicting obligations of consultants or others who are involved in
developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or
ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual
property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material
adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs
and be a distraction to management and other employees.
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Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal
responsibilities.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur
significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there
could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities
analysts or investors perceive these results to be negative it could have a substantial adverse effect on the price of our common stock.
Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development
activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct
such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings
more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation
of patent litigation or other proceedings could compromise our ability to compete in the marketplace.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee
payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or
eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be
due to be paid to the United States Patent and Trademark Office and various governmental patent agencies outside of the United States
in several stages over the lifetime of the patents and/or applications. We rely on our outside counsel to pay these fees due to non-U.S.
patent agencies. The United States Patent and Trademark Office and various non-U.S. governmental patent agencies require
compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application
process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be
cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which non-
compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights
in the relevant jurisdiction. In such an event, potential competitors might be able to enter the market and this circumstance could have
a material adverse effect on our business.
Changes in United States patent law could diminish the value of patents in general, thereby impairing our ability to protect
our products.
As is the case with other biotechnology companies, our success is heavily dependent on intellectual property, particularly
patents. Obtaining and enforcing patents in the biotechnology industry involve both technological and legal complexity, and therefore
obtaining and enforcing biotechnology patents is costly, time-consuming and inherently uncertain.
Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications
and the enforcement or defense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-
Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include
provisions that affect the way patent applications are prosecuted and may also affect patent litigation. The United States Patent and
Trademark Office recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of
the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became
effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our
business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the
prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse
effect on our business and financial condition.
Moreover, recent United States Supreme Court rulings have narrowed the scope of patent protection available in certain
circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our
ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once
obtained. Depending on decisions by the United States Congress, the federal courts, and the United States Patent and Trademark
Office, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new
patents or to enforce our existing patents and patents that we might obtain in the future.
We have not yet sought FDA approval of names for any of our product candidates and failure to secure such approvals could
adversely affect our business.
Any name we propose to use with our product candidates in the United States must be approved by the FDA, regardless of
whether we have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product
names, including an evaluation of potential for confusion with other product names. If the FDA objects to any of our proposed
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proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable substitute
name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the
FDA.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively
expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the
United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal
and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all
countries outside the United States, or from selling or importing products made using our inventions in and into the United States or
other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop
their own products and further, may export otherwise infringing products to territories where we have patent protection, but
enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other
intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign
jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents,
trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it
difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights
generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and
attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent
applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that
we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to
enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the
intellectual property that we develop or license.
Risks related to ownership of our common stock
An active trading market for our common stock may not be sustained.
Although we have listed our common stock on The NASDAQ Global Market, an active trading market for our common stock
may not be sustained. In the absence of an active trading market for our common stock, you may not be able to resell shares of our
common stock at or above the price you paid, or at all.
The market price for our common stock may be volatile, which could contribute to the loss of your investment.
Fluctuations in the price of our common stock could contribute to the loss of all or part of your investment. If an active market
for our common stock develops and continues, the trading price of our common stock is likely to continue to be highly volatile and
could be subject to wide fluctuations in response to various factors, some of which are beyond our control. Any of the factors listed
below could have a material adverse effect on your investment in our common stock. In such circumstances the trading price of our
common stock may not recover and may experience a further decline.
Factors affecting the trading price of our common stock may include:
our failure to develop and commercialize our product candidates;
actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived
to be similar to us;
changes in the market’s expectations about our operating results;
adverse results or delays in preclinical studies or clinical trials;
our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial;
adverse regulatory decisions, including failure to receive regulatory approval for any of our product candidates;
success of competitive products;
adverse developments concerning our collaborations and our manufacturers;
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inability to obtain adequate product supply for any product candidate for clinical trials or commercial sale or inability to
do so at acceptable prices;
the termination of a collaboration or the inability to establish additional collaborations;
unanticipated serious safety concerns related to the use of any of our product candidates;
our ability to effectively manage our growth;
the size and growth, if any, of the orphan ophthalmology and other targeted markets;
our operating results failing to meet the expectation of securities analysts or investors in a particular period or failure of
securities analysts to publish reports about us or our business;
changes in financial estimates and recommendations by securities analysts concerning our company, the gene therapy
market, or the biotechnology and pharmaceutical industries in general;
operating and stock price performance of other companies that investors deem comparable to us;
overall performance of the equity markets;
announcements by us or our competitors of acquisitions, new product candidates or programs, significant contracts,
commercial relationships or capital commitments;
our ability to successfully market our product candidates;
changes in laws and regulations affecting our business, including but not limited to clinical trial requirements for
approvals;
disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain
patent protection for our product candidates and gene therapy platform;
commencement of, or involvement in, litigation involving our company, our general industry, or both;
changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;
the volume of shares of our common stock available for public sale;
additions or departures of key scientific or management personnel;
any major change in our board or management;
changes in accounting practices;
ineffectiveness of our internal control over financial reporting;
sales of substantial amounts of common stock by our directors, executive officers or significant stockholders or the
perception that such sales could occur; and
general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations
and acts of war or terrorism.
Broad market and industry factors may materially harm the market price of our common stock irrespective of our operating
performance. The stock market in general, and The NASDAQ Global Market and the market for biotechnology companies in
particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating
performance of the particular companies affected. The trading prices and valuations of these stocks, and of ours, may not be
predictable. A loss of investor confidence in the market for technology or software stocks or the stocks of other companies which
investors perceive to be similar to us, the opportunities in the digital simulation market or the stock market in general, could depress
our stock price regardless of our business, prospects, financial conditions or results of operations.
If securities analysts do not publish research or reports about our business or if they downgrade our stock, the price of our
common stock could decline.
The trading market for our common stock relies in part on the research and reports that industry or financial analysts publish
about us, our business, our markets and our competitors. We do not control these analysts. As a newly public company, we have only
limited coverage by securities analysts. If securities analysts do not continue to cover our common stock, the lack of research coverage
may adversely affect the market price of our common stock. Furthermore, if one or more of the analysts who do cover us downgrade
our stock or if those analysts issue other unfavorable commentary about us or our business, our stock price would likely decline. If one
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or more of these analysts cease coverage of us or fails to regularly publish reports on us, we could lose visibility in the market and
interest in our stock could decrease, which in turn could cause our stock price or trading volume to decline and may also impair our
ability to expand our business with existing customers and attract new customers.
We are an “emerging growth company,” and the reduced reporting requirements applicable to emerging growth companies
may make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth
company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies
that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of
Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and
stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to
five years from the date of our initial public offering on March 26, 2014, although circumstances could cause us to lose that status
earlier, including if the market value of our common stock held by non-affiliates exceeds $700.0 million as of any December 31
before that time or if we have total annual gross revenue of $1.0 billion or more during any fiscal year before that time, in which cases
we would no longer be an emerging growth company as of the following June 30 or, if we issue more than $1.0 billion in non-
convertible debt during any three-year period before that time, we would cease to be an emerging growth company immediately. Even
after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” which would allow
us to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the
auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive
compensation. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If
some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and
our stock price may be more volatile.
Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time
as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or
revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies
that are not emerging growth companies. As a result, changes in rules of U.S. generally accepted accounting principles or their
interpretation, the adoption of new guidance or the application of existing guidance to changes in our business could significantly
affect our financial position and results of operations.
Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity
incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price
to fall.
We expect that significant additional capital may be needed in the future to continue our planned operations, including
conducting clinical trials, commercialization efforts, expanded research and development activities, potential acquisitions, in-licenses,
or collaborations and costs associated with operating a public company. To raise capital, we may sell common stock, convertible
securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell
common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by
subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights,
preferences and privileges senior to the holders of our common stock.
We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your
investment will depend on the appreciation in the price of our common stock.
We have never declared or paid any cash dividends on our common stock. We currently intend to retain any future earnings to
fund our future growth and do not expect to declare or pay any dividend on shares of our common stock in the foreseeable future. As a
result, you may only receive a return on your investment in our common stock if the market price of our common stock appreciates
and you sell your shares at a price above your cost.
We could be subject to securities class action litigation.
In the past, securities class action litigation has often been brought against a company following a decline in the market price of
its securities. This risk is especially relevant for us because biotechnology companies have experienced significant stock price
volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and
resources, which could harm our business.
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Anti-takeover provisions in our amended and restated certificate of incorporation and amended and restated bylaws, as well
as provisions in Delaware law, might discourage, delay or prevent a change of control of our company or changes in our
management and, therefore, depress the trading price of our common stock.
Our certificate of incorporation, bylaws and Delaware law contain provisions that could have the effect of rendering more
difficult or discouraging an acquisition deemed undesirable by our board of directors, even if doing so would benefit our stockholders
or remove our current management. Our corporate governance documents include provisions:
providing for three classes of directors with the term of office of one class expiring each year, commonly referred to as a
staggered board;
authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior
to our common stock;
limiting the liability of, and providing indemnification to, our directors and officers;
eliminating the ability of our stockholders to call and bring business before special meetings and to take action by written
consent in lieu of a meeting;
requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for
nominations of candidates for election to our board of directors;
controlling the procedures for the conduct and scheduling of board and stockholder meetings;
limiting the determination of the number of directors on our board and the filling of vacancies or newly created seats on
the board to our board of directors then in office; and
providing that directors may be removed by stockholders only for cause.
These provisions, alone or together, could delay hostile takeovers and changes in control or changes in our management.
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General
Corporation Law, which prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested
stockholder, generally a person which together with its affiliates owns, or within the last three years has owned, 15% of our voting
stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner.
The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay
in the future for shares of our common stock. They could also deter potential acquirers of our company, thereby reducing the
likelihood that you could receive a premium for your common stock in an acquisition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Alachua, Florida
Our corporate headquarters are located in Alachua, Florida. Our current leased facilities encompass approximately 6,975 square
feet of office and laboratory space. The leases for these office and laboratory facilities expire on December 31, 2015.
In April 2015, we entered into an agreement to lease approximately 18,300 square feet of laboratory and office space for a 10-
year period expected to commence in December 2015. The new facility, located across the street from our current facilities in
Alachua, will accommodate all of our office and laboratory space under one roof and allow for future growth and expansion. We have
options to extend the term of the lease for three additional five-year periods and also have rights to lease up to approximately 2,700
additional square feet of space within the same facility.
Cambridge, Massachusetts
In August 2015, we entered into a two-year lease to occupy approximately 3,000 square feet of office and laboratory space in
Cambridge, Massachusetts. This new facility, located at One Kendall Square, will focus primarily on business development,
pharmacology, and basic research and development.
65
ITEM 3.
LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock has been listed on The NASDAQ Global Market under the symbol “AGTC” since March 27, 2014. Prior to
that date, there was no public market for our common stock. The following table sets forth, for the periods indicated, the high and low
intraday sales prices of our common stock as reported by The NASDAQ Global Market:
First fiscal quarter ............................................................. $
Second fiscal quarter ........................................................ $
Third fiscal quarter (For 2014, began March 27, 2014)..... $
Fourth fiscal quarter ......................................................... $
25.46 $
28.24 $
25.42 $
22.99 $
14.70 $
16.20 $
19.26 $
14.40 $
2015
High
Low
2014
High
-
-
$
$
16.82 $
34.37 $
Low
-
-
12.50
11.10
As of August 31, 2015, a total of 17,953,531 shares of our common stock were outstanding and we had 33 holders of record of
our common stock.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and
future earnings, if any, to finance the growth and development of our business. We do not expect to pay any cash dividends on our
common stock in the foreseeable future.
Securities Authorized For Issuance Under Equity Compensation Plans
For information regarding securities authorized for issuance under our equity compensation plans, see Part III, Item 12,
“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
66
Comparative Stock Performance
The following stock performance graph compares the cumulative total return to stockholders for our common stock for the
period commencing March 27, 2014 (the date on which our common stock commenced trading on The NASDAQ Global Market) and
ended June 30, 2015 against the cumulative total return of the NASDAQ Composite Index and the NASDAQ Biotechnology Index.
The calculation of total cumulative returns assumes a $100 investment in our common stock, the NASDAQ Composite Index and the
NASDAQ Biotechnology Index, and assumes reinvestment of all dividends, if any. The historical information set forth below is not
necessarily indicative of future performance.
Applied Genetic Technologies Corporation ..........................................................................
NASDAQ Composite Index ..................................................................................................
NASDAQ Biotechnology Index ...........................................................................................
3/14
100.00
100.00
100.00
6/14
156.50
105.06
109.46
6/15
103.93
119.18
148.52
67
ITEM 6:
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with our financial statements and related notes in Part II,
Item 8 of this Annual Report on Form 10-K and with our “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” in Part II, Item 7 of this Annual Report on Form 10-K.
Our selected statement of operations data for the fiscal years ended June 30, 2015, 2014 and 2013 and our selected balance sheet
data as of June 30, 2015 and 2014 are derived from our audited financial statements included elsewhere in this report. Our historical
results are not necessarily indicative of results to be expected for any future period. The selected financial data in this section are not
intended to replace our financial statements and the related notes.
Selected Financial Data
2015
Fiscal Year Ended June 30,
2013
2014
(in thousands except per share data)
2012
Statement of Operations Data:
Revenue:
Grant revenue ................................................................ $
Sponsored research and other revenue ...........................
Total revenue ............................................................
Operating expenses:
Research and development ............................................
General and administrative ............................................
Total operating expenses ..........................................
Loss from operations ...........................................................
Other income (expense):
Investment income, net ..................................................
Interest expense .............................................................
Fair value adjustments to warrant liabilities (1) ............
Fair value adjustments to Series B purchase rights (1) ....
Other ..............................................................................
Total other (expense) income, net ............................
Net loss ............................................................................... $
Net loss per share, basic and diluted (2) .............................. $
Weighted-average shares outstanding, basic and diluted (2) .....
Balance Sheet Data:
Cash and cash equivalents ................................................... $
Short and long-term investments ........................................ $
Total assets .......................................................................... $
Current liabilities ................................................................ $
Convertible preferred stock ................................................. $
Total stockholders’ equity (deficit) ..................................... $
1,682 $
672
2,354
16,528
10,358
26,886
(24,532)
216
—
—
—
(2)
214
(24,318) $
(1.50) $
16,253
917 $
212
1,129
8,503
5,182
13,685
(12,556)
42
—
(441)
(2,904)
(49)
(3,352)
(15,908) $
(4.46) $
3,568
439 $
503
942
3,133
1,403
4,536
(3,594)
10
(191)
(8)
(1,207)
—
(1,396)
(4,990) $
(45.78) $
109
718
364
1,082
2,354
787
3,141
(2,059)
—
(69)
204
—
—
135
(1,924)
(17.65)
109
2015
2014
2013
2012
(in thousands)
As of June 30,
39,187 $
46,083 $
90,174 $
4,642 $
— $
85,532 $
8,623 $
64,450 $
77,407 $
2,534 $
— $
74,873 $
8,893 $
14,000 $
25,490 $
3,460 $
58,103 $
(36,183) $
774
—
2,824
1,494
32,524
(31,290)
(1) See Note 12 of Notes to Financial Statements appearing elsewhere in this annual report on Form 10-K for a description of the
fair value adjustments to our warrant liabilities and Series B purchase rights.
(2) See Note 2 of Notes to Financial Statements appearing elsewhere in this annual report on Form 10-K for a description of the
method used to calculate basic and diluted net loss per share.
68
ITEM 7:
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with
the financial statements and notes included in Part IV, Item 15 of this Annual Report on Form 10-K. In addition to historical financial
information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual
results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these
differences include those discussed below and elsewhere in this Annual Report, including but not limited to those set forth in
“Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.”
Overview
We are a clinical-stage biotechnology company that uses our proprietary gene therapy platform to develop products designed to
transform the lives of patients with severe diseases in ophthalmology. Our lead product candidates are treatments for X-linked
retinoschisis, or XLRS, achromatopsia, or ACHM, and X-linked retinitis pigmentosa, or XLRP. These rare diseases of the eye are
caused by mutations in single genes, significantly affect visual function and currently lack effective medical treatments. Our
development pipeline goals include the following:
In March 2015, we filed an Investigational New Drug (“IND”) application for our XLRS product candidate. This
application was accepted by the U.S. Food and Drug Administration (“FDA”) in April 2015 and we expect to report initial
clinical data for this program during the second half of calendar year 2015.
For our ACHM product candidate, we plan to file an IND later this year and expect to initiate a Phase I/II clinical trial
thereafter, subject to the FDA’s review and acceptance of that application.
We have also begun preclinical studies for our product candidate addressing XLRP, a disease characterized by progressive
degeneration of the retina, leading to total blindness in adult men.
We also plan to develop new treatments for AMD by leveraging our experience developing products in orphan
ophthalmology and our work with a partner on a first generation product for wet AMD.
In the longer term, we will seek opportunities to take advantage of the adaptability of our gene therapy platform to address
a range of genetic diseases, both within and beyond our initial focus area of orphan ophthalmology.
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. To date,
we have funded our operations primarily through the private placement of preferred stock, common stock, convertible notes and
warrants to purchase preferred stock and through our public offerings consummated in April 2014 and July/August 2014. 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. Our net losses were $24.3 million, $15.9 million, and
$5.0 million for each of the fiscal years ended June 30, 2015, 2014 and 2013, 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;
continue our research and development efforts, including exploration through early preclinical studies of potential
applications of our gene therapy platform in other indications in orphan ophthalmology and in wet AMD;
manufacture clinical trial materials and develop large-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.
69
As of June 30, 2015, we had cash and cash equivalents and investments totaling $85.3 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 at June 30, 2015, combined with the net
proceeds from our collaboration with Biogen (discussed below), will be sufficient to enable us to advance planned preclinical studies
and clinical trials for our lead product candidates 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.
Recent Developments
Collaboration with Biogen
On July 1, 2015, we entered into a collaboration arrangement (the “Collaboration Agreement”) with Biogen pursuant to which
we and Biogen will collaborate to develop, seek regulatory approval for and commercialize gene therapy products to treat XLRS,
XLRP, and discovery programs targeting three indications based on our adeno-associated virus vector technologies. The
Collaboration Agreement became effective on August 14, 2015, following expiration of the waiting period under the Hart-Scott-
Rodino Antitrust Improvements Act.
Under the Collaboration Agreement, we will conduct all development activities through regulatory approval in the United States
for the XLRS program, and all development activities through the completion of the first in human clinical trial for the XLRP
program. In addition, the Collaboration Agreement provides for discovery programs targeting three indications whereby we will
conduct discovery, research and development activities for those additional drug candidates through the stage of clinical candidate
designation, after which, Biogen may exercise an option to continue to develop, seek regulatory approval for and commercialize the
designated clinical candidate. Under the terms of the Collaboration Agreement, we, in part through our participation in joint
committees with Biogen, will participate in overseeing the development and commercialization of these specific programs.
We will grant Biogen an exclusive, royalty-bearing license, with the right to grant sublicenses, to use adeno-associated virus
vector technology and other technology controlled by us for the purpose of researching, developing, manufacturing and
commercializing licensed products developed under the Collaboration Agreement. We will also grant Biogen a non-exclusive,
worldwide, royalty-free, fully paid license, with the right to grant sublicenses, of our interest in other intellectual property developed
pursuant to the Collaboration Agreement.
Under the Collaboration Agreement, we received a non-refundable upfront payment of $94.0 million in August 2015. As a
result of the upfront payment made by Biogen, we became liable to various research partner institutions for total license payments of
approximately $9.4 million. These license payables are due at varying dates ranging from 15 days following receipt of the upfront
payment from Biogen to 75 days following the end of our first fiscal quarter ending September 30, 2015.
We are also eligible to receive payments of up to $467.5 million based on the successful achievement of future milestones under
the two lead programs and up to $592.5 million based on the exercise of the option for and the successful achievement of future
milestones under the three discovery programs. Biogen will pay revenue-based royalties for each licensed product at tiered rates
ranging from high single digit to mid-teen percentages of annual net sales of the XLRS or XLRP products and at rates ranging from
mid-single digit to low-teen percentages of annual net sales for the discovery products. Due to the uncertainty surrounding the
achievement of the future milestones, such payments were not considered fixed or determinable at the inception of the Collaboration
Agreement and accordingly, will not be recognized as revenue unless and until they become earned. We achieved the first milestone
under the XLRS program in late August 2015, which triggers a milestone payment from Biogen of $5.0 million. We are not able to
reasonably predict if and when the remaining milestones will be achieved.
In addition to the Collaboration Agreement, on July 1, 2015, we also entered into an equity agreement with Biogen. Under the
terms of this equity agreement, Biogen purchased 1,453,957 shares of our common stock, at a purchase price equal to $20.63 per
share, for an aggregate cash purchase price of $30.0 million. The shares issued to Biogen represented approximately 8.1% of our
issued common stock post-issuance (based on the shares that were issued at June 30, 2015) and constitute restricted securities that may
70
not be resold by Biogen other than in a transaction registered under the Securities Act of 1933, as amended, or pursuant to an
exemption from such registration requirement. The cash proceeds of $30.0 million were received from Biogen in August 2015.
Collaboration with 4D Molecular Therapeutics
In April 2015, we signed an agreement with 4D Molecular Therapeutics (“4DMT”) to conduct research on optimized next
generation capsids to target specific target cell populations within the human retina using 4DMT’s Directed Evolution AAV vector
discovery platform. If promising capsids result from the research, we have an option to enter into a licensing agreement.
Financial operations overview
Revenue
Our ability to generate product revenue and become profitable depends upon our ability to successfully commercialize products.
To date, we have not generated any revenues from the sales of products. In the three fiscal years ended June 30, 2015, 2014 and 2013,
all our revenues were derived from grants and sponsored research arrangements. Revenue is recognized when there is reasonable
assurance that it will be received and we have complied with the terms of the grant or the sponsored research arrangement. Beginning
with fiscal year 2016, we expect to start recognizing revenue from our collaboration with Biogen discussed above.
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 fees;
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.
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 partners;
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;
71
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 any of our
clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical
development.
As of June 30, 2015, we had a total of 25 research and development personnel. From inception through June 30, 2015, we have
incurred approximately $71.4 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 XLRS, ACHM and XLRP 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, finance and human resource functions. Other general
and administrative expenses include facility-related costs and professional fees for directors, accounting and audit costs primarily
associated with operating as a publicly-listed company, and legal services and expenses associated with our general operations and
obtaining and maintaining patents.
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. In 2014 and before, other income and expense also included interest expense charged on previously-held debt and re-
measurement gains and losses associated with the change in the fair value of liabilities associated with our prior Series B purchase
rights and preferred stock warrants. We previously used the Black-Scholes option pricing model to estimate the fair value of liabilities
associated with these Series B purchase rights and preferred stock warrants.
Critical accounting policies and estimates
The following discussion of critical accounting policies identifies the accounting policies that require application of
management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain and may change in subsequent periods. It is not intended to be a comprehensive list of all of our
significant accounting policies, which are more fully described in Note 2 of the notes to the financial statements appearing elsewhere
in this annual report on Form 10-K. In many cases, the accounting treatment of a particular transaction is specifically dictated by
generally accepted accounting principles, with no need for management’s judgment in their application. There are also areas in which
the selection of an available alternative policy would not produce a materially different result.
Revenue recognition
We have generated revenue primarily through sponsored research arrangements with nonprofit organizations for the
development and commercialization of product candidates and revenues from federal research and development grant programs. We
recognize revenue when amounts are realized or realizable and earned. Revenue is considered realizable and earned when the
following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered;
(3) the price is fixed or determinable; and (4) collection of the amounts due are reasonably assured.
We evaluate the terms of sponsored research agreement grants and federal grants to assess our obligations and if our obligations
are satisfied by the passage of time, revenue is recognized on a straight-line basis. In situations where the performance of our
obligations has been satisfied when the grant is received, revenue is recognized upon receipt of the grant. Certain grants contain refund
72
provisions. We review those refund provisions to determine the likelihood of repayment. If the likelihood of repayment of the grant is
determined to be remote, the grant is recognized as revenue. If the probability of repayment is determined to be more than remote, we
record the grant as a deferred revenue liability, until such time that the grant requirements have been satisfied.
Collaboration revenue
As described above, on July 1, 2015, we entered into a collaboration agreement with Biogen. The terms of this agreement and
other potential collaboration or commercialization agreements we may enter into generally contain multiple elements, or deliverables,
which may include, among others, (i) licenses, or options to obtain licenses, to our technology, and (ii) research and development
activities to be performed on behalf of the collaborative partner. Payments made under such arrangements typically include one or
more of the following: non-refundable, up-front license fees; option exercise fees; funding of research and/or development efforts;
milestone payments; and royalties on future product sales.
Multiple element arrangements are analyzed to determine whether the deliverables within the agreement can be separated or
whether they must be accounted for as a single unit of accounting. Deliverables under an agreement are required to be accounted for
as separate units of accounting provided that (i) a delivered item has value to the customer on a stand-alone basis; and (ii) if the
agreement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item is
considered probable and substantially in the control of the vendor. The allocation of consideration amongst the deliverables under the
agreement is derived using a “best estimate of selling price” if vendor specific objective evidence and third party evidence of fair
value is not available. If the delivered element does not have stand-alone value or if the fair value of any of the undelivered elements
cannot be determined, the arrangement is then accounted for as a single unit of accounting, and we recognize the consideration
received under the arrangement as revenue on a straight-line basis over our estimated period of performance.
Milestone revenue
We apply the milestone method of accounting to recognize revenue from milestone payments when earned, as evidenced by
written acknowledgement from the collaborator or other persuasive evidence that the milestone has been achieved and the payment is
non-refundable, provided that the milestone event is substantive. A milestone event is defined as an event (i) that can only be
achieved based in whole or in part on either our performance or on the occurrence of a specific outcome resulting from our
performance; (ii) for which there is substantive uncertainty at the inception of the arrangement that the event will be achieved; and (iii)
that would result in additional payments being due to us. Events for which the occurrence is either contingent solely upon the passage
of time or the result of a counterparty’s performance are not considered to be milestone events. A milestone event is substantive if all
of the following conditions are met: (i) the consideration is commensurate with either our performance to achieve the milestone, or the
enhancement of the value to the delivered item(s) as a result of a specific outcome resulting from our performance to achieve the
milestone; (ii) the consideration relates solely to past performance; and (iii) the consideration is reasonable relative to all the
deliverables and payment terms (including other potential milestone consideration) within the arrangement.
We assess whether a milestone is substantive at the inception of the arrangement. If a milestone is deemed non-substantive, we
account for that milestone payment in accordance with the multiple element arrangements guidance and recognize revenue consistent
with the related units of accounting for the arrangement over the related performance period.
Research and development expenses
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 our financial statements, we are required to estimate our accrued expenses. This process
involves reviewing quotations and contracts, identifying services that have been performed on our behalf and estimating the level of
service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the
actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones
are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and
circumstances known to us at that time. The significant estimates in our accrued research and development expenses are related to
expenses incurred with respect to academic research centers, CROs, and other vendors in connection with research and development
activities for which we have not yet been invoiced.
There may be instances in which our 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
73
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.
Share-based compensation
We account for share-based awards issued to employees in accordance with Accounting Standard Codification (“ASC”) Topic
718, Compensation—Stock Compensation (“ASC 718”) generally recognize share-based compensation expense on a straight-line basis
over the periods during which the employees and non-employee directors are required to provide service in exchange for the award.
In addition, we issue stock options and restricted shares of common stock to non-employees in exchange for consulting services and
account 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 are subject to periodic fair value re-measurement over their vesting
terms.
For purposes of calculating stock-based compensation, we estimate the fair value of stock options using a Black-Scholes option-
pricing model. The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by our
stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends.
The expected volatility is primarily based on the historical volatility of peer company data while the expected life of the stock options
is based on historical and other economic data trended into the future. The risk-free interest rate assumption is based on observed
interest rates appropriate for the expected terms of our stock options. The dividend yield assumption is based on our history and
expectation of no dividend payouts. If factors change and we employ different assumptions, stock-based compensation expense may
differ significantly from what we have recorded in the past. If there is a difference between the assumptions used in determining stock-
based compensation expense and the actual factors which become known over time, specifically with respect to anticipated forfeitures,
we may change the input factors used in determining stock-based compensation costs for future grants. These changes, if any, may
materially impact our results of operations in the period such changes are made.
Recent Accounting Pronouncements
In August 2014, the FASB issued Accounting Standard Update No. 2014-15, Disclosure of Uncertainties About an Entity’s
Ability to Continue as a Going Concern. The amendments require management to perform interim and annual assessments of an
entity’s ability to continue as a going concern and provides guidance on determining when and how to disclose going concern
uncertainties in the financial statements. The standard applies to all entities and is effective for annual and interim reporting periods
ending after December 15, 2016, with early adoption permitted. We are currently evaluating the impact that this new guidance will
have on our financial statements.
In May 2014, the FASB issued guidance that requires companies to recognize revenue to depict the transfer of goods or services
to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or
services. It also requires enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed
comprehensively, and improves guidance for multiple-element arrangements. The guidance applies to any entity that either enters into
contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those
contracts are within the scope of other standards. In July 2015, the FASB delayed the effective date of this guidance by one year. The
guidance is now effective for public companies for annual periods beginning after December 15, 2017 as well as interim periods
within those annual period using either the full retrospective approach or modified retrospective approach. We are currently
evaluating the impacts of the new guidance on our financial statements.
Emerging growth company status
The JOBS Act permits an “emerging growth company” such as ours to take advantage of an extended transition period to
comply with new or revised accounting standards applicable to public companies. We have chosen to “opt out” of this provision and,
as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the
extended transition period under the JOBS Act is irrevocable.
74
Results of operations
Comparison of the fiscal years ended June 30, 2015 and 2014
Revenue
Fiscal year ended June 30,
Increase
% Increase
Grant revenue ................................................................................... $
Sponsored research ..........................................................................
Other ................................................................................................
Total revenue .............................................................................. $
1,682 $
572
100
2,354 $
2015
2014
(dollars in thousands)
917 $
212
—
1,129 $
765
360
100
1,225
83%
170%
100%
109%
(Decrease)
(Decrease)
Total revenue for fiscal year 2015 increased by $1.2 million to $2.4 million compared to fiscal year 2014. The year-over-year
increase was primarily driven by higher grant revenue resulting from increased research and development activities on grant-funded
projects. In addition, sponsored research revenue was higher in 2015 compared to prior year largely as a result of the approval of our
Investigational New Drug Application for XLRS that was filed with the FDA in March 2015, triggering milestone payments from a
patient advocacy group. Other revenue was generated from a right of reference agreement that was entered into with a strategic
partner during the first quarter of fiscal year 2015.
75
Research and development expense
Fiscal Year Ended June 30,
Increase
% Increase
2015
2014
(dollars in thousands)
(Decrease)
(Decrease)
Outside program costs ...................................................................... $
Employee-related costs ....................................................................
Share-based compensation ...............................................................
Other ................................................................................................
Total research and development expense ................................... $
10,800 $
2,923
908
1,897
16,528 $
5,287 $
1,504
77
1,635
8,503 $
5,513
1,419
831
262
8,025
104%
94%
n/m
16%
94%
Research and development expense for fiscal year 2015 increased by $8.0 million to $16.5 million compared to fiscal year 2014.
Outside program costs were higher due to increased research and development activity primarily relating to our XLRS, XLRP, ACHM
and other product candidates. The increase in employee-related and share-based compensation costs is attributable to the hiring of
additional employees to support the higher level of research and development activity combined with comparatively higher fair values
of awards issued under our share-based compensation plans.
General and administrative expense
Fiscal Year Ended June 30,
Employee-related costs .................................................................... $
Share-based compensation ...............................................................
Legal and professional fees ..............................................................
Licenses and related fees ..................................................................
Other ................................................................................................
Total general and administrative expense ................................... $
2015
2,231 $
1,912
1,909
1,590
2,716
10,358 $
Increase
(Decrease)
% Increase
(Decrease)
2014
(dollars in thousands)
1,665 $
748
844
435
1,490
5,182 $
566
1,164
1,065
1,155
1,226
5,176
34%
156%
126%
266%
82%
100%
General and administrative expense for fiscal year 2015 increased by $5.2 million to $10.4 million compared to fiscal year 2014.
The increase in employee-related and share-based compensation costs is attributable to the hiring of additional employees combined
with comparatively higher fair values of awards issued under our share-based compensation plans. The increase in legal and license
fees was largely the result of the recent collaboration agreements entered into with Biogen and 4D Molecular Therapeutics while the
increase in other administrative expenses is primarily due to higher insurance, accounting and other expenses associated with
operating as a publicly-traded company.
Other income (expense), net
For fiscal year 2015, other income (expense), net of $214 thousand was primarily comprised of investment income compared to
an expense of $3.4 million in fiscal year 2014. The $3.4 million of expense recorded in 2014 was primarily attributable to fair value
adjustments that were associated with our former Series B purchase rights and warrant liabilities, extinguished in connection with our
initial public offering in April 2014.
Comparison of the fiscal years ended June 30, 2014 and 2013
Revenue
Fiscal year ended June 30,
Grant revenue ................................................................................... $
Sponsored research revenue .............................................................
Total revenue .............................................................................. $
917 $
212
1,129 $
2014
2013
(dollars in thousands)
439 $
503
942 $
478
(291)
187
109%
(58)%
20%
Increase
(Decrease)
% Increase
(Decrease)
Total revenue for fiscal year 2014 increased by $187 thousand to $1.1 million compared to fiscal year 2013. The increase was
primarily driven by higher grant revenue resulting from the inception of new grant-funded projects, partially offset by decreased
sponsored research revenue due to the timing in achieved milestones.
76
Research and development expense
Fiscal Year Ended June 30,
Increase
% Increase
Outside program costs ...................................................................... $
Employee-related costs ....................................................................
Other ................................................................................................
Total research and development expense ................................... $
5,287 $
1,504
1,712
8,503 $
2014
2013
(dollars in thousands)
901 $
1,089
1,143
3,133 $
4,386
415
569
5,370
487%
38%
50%
171%
(Decrease)
(Decrease)
Research and development expense for fiscal year 2014 increased by $5.4 million to $8.5 million compared to fiscal year 2013.
The increase was the result of increased activity relating to our XLRS, ACHM and other product candidates, including increased
facilities costs relating to laboratory expansion and increased personnel costs relating to new hires.
General and administrative expense
Fiscal Year Ended June 30,
Employee-related costs .................................................................... $
Share-based compensation ...............................................................
Legal and professional fees ..............................................................
Licenses and related fees ..................................................................
Other ................................................................................................
Total general and administrative expense ................................... $
2014
1,665 $
748
844
435
1,490
5,182 $
2013
(dollars in thousands)
694 $
15
259
22
413
1,403 $
971
733
585
413
1,077
3,779
140%
n/m
226%
n/m
261%
269%
Increase
(Decrease)
% Increase
(Decrease)
General and administrative expense for fiscal year 2014 increased by $3.8 million to $5.2 million compared to fiscal year 2013.
The increase was primarily the result of increased legal and accounting expenses associated with the Company’s readiness for its
initial public offering and related public company costs, along with increased overhead and personnel costs associated with new hires.
Other income (expense), net
Other income (expense), net for fiscal year 2014 was a net expense of $3.4 million, an increase of $2.0 million compared to
fiscal year 2013. The higher expense was largely the result of fair value adjustments associated with our Series B purchase rights and
our warrant liabilities, which increased by $1.7 million and $433 thousand, respectively, compared to fiscal year 2013. The fair values
of the Series B purchase rights and warrant liabilities had previously been estimated using the Black-Scholes option pricing model
which requires some subjective assumptions as some of its inputs. As of June 30, 2014, these Series B purchase rights had been fully
exercised and the warrants had been converted into warrants exercisable for common stock.
Liquidity and capital resources
We have incurred cumulative losses and negative cash flows from operations since our inception in 1999, and as of June 30,
2015, we had an accumulated deficit of $88.7 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.
During fiscal year 2015, we successfully completed a follow on public offering of common stock from which we received
proceeds of $32.0 million, net of underwriters’ commissions and discounts and other related expenses. 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 24 months.
As of June 30, 2015, we had cash and cash equivalents and investments of $85.3 million. This amount does not include cash proceeds
totaling $124.0 million from our collaboration agreement with Biogen, which we received during our first fiscal quarter ending
September 30, 2015.
77
As of June 30, 2015, our cash and cash equivalents were held in bank accounts and money market funds, while our short and
long-term investments consisted of certificates of deposit and corporate and government bonds, none of which mature more than 24
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:
2015
Fiscal Year Ended June 30,
2014
(in thousands)
2013
Net cash provided by (used in):
Operating activities ............................................................................... $
Investing activities ................................................................................
Financing activities ...............................................................................
Net (decrease) increase in cash and cash equivalents ................................ $
(19,485) $
17,892
32,157
30,564 $
(11,928 ) $
(50,826 )
62,484
(270 ) $
(2,777)
(14,481)
25,377
8,119
Operating activities. Net cash used in operating activities was $19.5 million, $11.9 million and $2.8 million during each of the
fiscal years ended 2015, 2014 and 2013, respectively. The use of net cash in all periods primarily resulted from our net losses and
changes in our working capital accounts.
Investing activities. Net cash provided by investing activities during fiscal year 2015 of $17.9 million was primarily comprised
of proceeds totaling $121.1 million from the maturity of investments, partially offset by cash outflows of $102.9 million related to the
purchase of investments and $323 thousand related to the acquisition and maintenance of intellectual property and purchase of
property and equipment. For fiscal year 2014, net cash used in investing activities was $50.8 million and consisted primarily of the
purchase of $80.0 million of investments and payments totaling $376 thousand associated with the acquisition and maintenance of our
intellectual property and purchase of property and equipment. These cash outflows were partially offset by $29.5 million of proceeds
realized upon the maturity of short-term investments. Net cash used in investing activities during fiscal year 2013 was $14.5 million
and consisted primarily of the purchase of $14.0 million of short-term investments using a portion of proceeds from our sale of shares
of Series B-1 and Series B-2 preferred stock, and payments totaling $531 thousand that were associated with the acquisition and
maintenance of our intellectual property and purchase of property and equipment.
Financing activities. Net cash provided by financing activities during fiscal year 2015 was $32.2 million, of which $32.0
million was related to the follow on public offering that we completed during our first quarter ended September 30, 2014. Net cash
provided by financing activities during fiscal year 2014 was $62.5 million and consisted primarily of $51.6 million of net proceeds
from the sale of common stock in our initial public offering, $10.7 million of proceeds from the issuance of our Series B-3 preferred
stock and Series B purchase rights, and $194 thousand of cash received from the exercise of common stock options. Net cash
provided by financing activities during fiscal year 2013 was $25.4 million and consisted primarily of the proceeds from the issuance
of our Series B-1 and Series B-2 preferred stock of $25.7 million and proceeds of $507 thousand received from the issuance of a term
note and warrants, partially offset by total repayments of $857 thousand on debt and a capital lease.
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 at June 30, 2015, together with the net proceeds from
our collaboration with Biogen, will be sufficient to enable us to advance planned preclinical studies and clinical trials for our lead
product candidates 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.
78
We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use
all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research,
development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital
requirements. Our future funding requirements will depend on many factors, including, but not limited to:
the timing and costs our planned clinical trials for our XLRS and ACHM product candidates;
the timing and costs of our planned preclinical studies of our XLRP product candidate;
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 partners;
the initiation, progress, timing, costs and results of preclinical studies relating to potential applications of our gene therapy
platform in other indications in orphan ophthalmology and wet AMD;
our success in scaling our HAVE manufacturing method and expanding our manufacturing capabilities;
the number and characteristics of product candidates that we pursue;
the outcome, timing and costs of seeking regulatory approvals;
subject to receipt of marketing approval, revenue received from commercial sales of our product candidates;
the terms and timing of any future collaborations, licensing, consulting or other arrangements that we may establish;
the amount and timing of any payments we may be required to make, or that we may receive, in connection with the
licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;
the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property
rights and defending against intellectual property related claims; and
the extent to which we in-license or acquire other products and technologies.
Contractual obligations and commitments
The following table summarizes our contractual obligations at June 30, 2015:
In thousands
Less
than 1
Year
Total
1 to 3
Years
3 to 5
Years
More
than 5
Years
Operating lease obligations (1) ............................................ $
Purchase obligations (2) .......................................................
Total ................................................................................ $
4,302 $
3,803
8,105 $
337 $
219
556 $
842 $
1,003
1,845 $
842 $
411
1,253 $
2,281
2,170
4,451
(1) Our current leased facilities encompass approximately 6,975 square feet of office and laboratory space in Alachua, Florida
under lease arrangements that will expire on December 31, 2015. On April 10, 2015, we entered into an agreement to lease
approximately 18,300 square feet of laboratory and office space at a new facility for a 10-year period expected to commence in
December 2015. Obligations at June 30, 2015 under noncancelable operating leases relate to both of these leasing
arrangements.
(2) Consists of minimum annual royalties and maintenance fees under license agreements with third parties. In addition to these
minimum annual payments, we may be required to make future payments related to milestones or royalties on future sales of
specified products. These contingent payments generally become due and payable only upon achievement of specified
developmental, regulatory or commercial milestones. The amount and timing of any of such payments are not known due to the
uncertainty surrounding the successful research, development and commercialization of the products and, as such, have not been
included in the above table.
79
Contingent contractual obligations
We also have obligations arising under our license agreements to make future payments to third parties that become due and
payable on the achievement of certain development, regulatory and commercial milestones (such as the start of a clinical trial, filing of
a Biologics License Application, or BLA, approval by the FDA or product launch). We have not included these obligations on our
balance sheet or in the table above because the achievement and timing of these milestones is not fixed nor determinable. These
obligations include:
Under each of our various licenses with the University of Florida Research Foundation, or UFRF, covering the AAV
construct containing the AAT gene and the method to treat AAT deficiency using this construct, a small cone cell specific
promoter, and the use of engineered capsids and under our joint license with UFRF and Johns Hopkins University
covering a particular HSV construct and various compositions thereof, we will be required to make payments based upon
development, regulatory and commercial milestones for any products covered by the in-licensed intellectual property. We
will also be required to pay a royalty on net sales of products covered by the in-licensed intellectual property. We have
the right to sublicense our rights under this agreement, and we will be required to pay a percentage of such license
income. We are required to make annual maintenance payments under these licenses, which payments are creditable
against royalty payments on a year-by-year basis.
Under our license agreement with the UAB Research Foundation pursuant to which we license a patent covering the use
of HSV helpers to produce AAV vectors, we will be required to make payments based upon development and regulatory
milestones for any products covered by the in-licensed intellectual property. We will also be required to pay a royalty on
net sales of products covered by the in-licensed intellectual property. We have the right to sublicense our rights under this
agreement, and we will be required to pay a percentage of such license income. We are required to make annual
maintenance payments under this license, which payments are creditable against royalty payments on a year-by-year
basis.
If any of our product candidates that utilize technology licensed under these agreements reached commercialization, we will be
obligated to make royalty payments ranging from 0.5% to 4.0% of our net sales of the applicable product. We are responsible for a
portion of the costs related to the preparation, filing, issuance, prosecution and maintenance of the patents covered by the license
agreements. In fiscal years 2015, 2014 and 2013, we paid annual royalty and milestone payments in the aggregate amounts of $122
thousand, $87 thousand and $61 thousand, respectively.
We enter into contracts in the normal course of business with contract research organizations for preclinical research studies,
research supplies and other services and products for operating purposes. These contracts generally provide for termination on notice,
and therefore are cancelable contracts and not included in the table of contractual obligations and commitments.
Off-balance sheet arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in
the rules and regulations of the Securities and Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
Our financial instruments at June 30, 2015 consisted primarily of cash and cash equivalents and short-term and long-term
investments totaling $85.3 million. These financial instruments are exposed to the impact of interest rate changes which may result in
fluctuations to our interest income. Due to the nature of our investments in money market funds, certificates of deposits, and debt
instruments of corporations and U.S. government agencies, and generally maturing within a two year period from their purchase date,
the estimated fair values of these financial instruments approximate their carrying amounts at June 30, 2015.
We maintain an investment portfolio in accordance with our investment policy. The primary objectives of this investment policy
are to maintain adequate liquidity, preserve capital and to meet our operating needs. Although our investments are subject to credit
risk, our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure from any
single issue, issuer or type of investment. Our investments are also subject to interest rate risk and may decrease in value if market
interest rates increase. However, due to the conservative nature of our investments and relatively short investment periods, we believe
interest rate risk is mitigated and an immediate 10% increase in interest rates would not have a material effect on the fair market value
of our portfolio. We do not own derivative financial instruments. Accordingly, we do not believe that there is any material market risk
exposure with respect to derivative or other financial instruments.
80
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
APPLIED GENETIC TECHNOLOGIES CORPORATION
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm .................................................................................................
Financial Statements
Balance Sheets at June 30, 2015 and 2014 ..................................................................................................................
Statements of Operations for the fiscal years ended June 30, 2015, 2014 and 2013 ...................................................
Statements of Stockholders’ Equity (Deficit) for the fiscal years ended June 30, 2015, 2014 and 2013 ....................
Statements of Cash Flows for the fiscal years ended June 30, 2015, 2014 and 2013 ..................................................
Notes to Financial Statements .....................................................................................................................................
Page(s)
82
83
84
85
86
87
Schedule II—Valuation and Qualifying Accounts ................................................................................................................
113
81
The Board of Directors and Stockholders of Applied Genetic Technologies Corporation
Report of Independent Registered Public Accounting Firm
We have audited the accompanying balance sheets of Applied Genetic Technologies Corporation (the Company) as of June 30, 2015
and 2014, and the related statements of operations, stockholders’ equity (deficit) and cash flows for each of the three years in the
period ended June 30, 2015. Our audits also included the financial statement schedule of the Company listed in Item 15(a). These
financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Applied
Genetic Technologies Corporation as of June 30, 2015 and 2014, the results of its operations and its cash flows for each of the three
years in the period ended June 30, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ McGladrey LLP
Raleigh, North Carolina
September 10, 2015
82
APPLIED GENETIC TECHNOLOGIES CORPORATION
BALANCE SHEETS
In thousands, except per share data
ASSETS
Current assets:
Cash and cash equivalents ............................................................................................... $
Investments ......................................................................................................................
Grants receivable .............................................................................................................
Prepaid and other current assets ......................................................................................
Total current assets .....................................................................................................
Investments ...........................................................................................................................
Property and equipment, net .................................................................................................
Intangible assets, net .............................................................................................................
Grants receivable...................................................................................................................
Other assets ...........................................................................................................................
Total assets ........................................................................................................................... $
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................................................................. $
Accrued and other liabilities ............................................................................................
Total current liabilities ...............................................................................................
Total liabilities .....................................................................................................................
Stockholders' equity:
Common stock, par value $.001 per share, 150,000 shares authorized;
16,491 and 14,082 shares issued;16,476 and 14,082 shares outstanding
at June 30, 2015 and June 30, 2014, respectively .........................................................
Additional paid-in capital ................................................................................................
Accumulated deficit .........................................................................................................
Total stockholders' equity ..........................................................................................
Total liabilities and stockholders' equity .......................................................................... $
At June 30,
2015
2014
39,187 $
22,454
883
1,608
64,132
23,629
478
1,448
480
7
90,174 $
1,191 $
3,451
4,642
4,642
8,623
64,450
487
1,876
75,436
—
381
1,586
—
4
77,407
949
1,585
2,534
2,534
16
174,168
(88,652 )
85,532
90,174 $
14
139,193
(64,334)
74,873
77,407
The accompanying notes are an integral part of the financial statements.
83
APPLIED GENETIC TECHNOLOGIES CORPORATION
STATEMENTS OF OPERATIONS
In thousands, except per share amounts
Revenue:
For the fiscal years ended June 30,
2014
2013
2015
Grant revenue ............................................................................................ $
Sponsored research and other revenue .......................................................
Total revenue ........................................................................................
1,682 $
672
2,354
Operating expenses:
Research and development ........................................................................
General and administrative ........................................................................
Total operating expenses ......................................................................
Loss from operations ....................................................................................
Other income (expense):
Investment income, net ..............................................................................
Interest expense .........................................................................................
Fair value adjustments to warrant liabilities ..............................................
Fair value adjustments to Series B purchase rights ...................................
Other expense ............................................................................................
Total other income (expense), net ........................................................
16,528
10,358
26,886
(24,532 )
216
—
—
—
(2 )
214
Net loss ...........................................................................................................
Net loss per share, basic and diluted ...........................................................
Weighted average shares outstanding, basic and
diluted .........................................................................................................
$
$
(24,318 ) $
(1.50 ) $
917 $
212
1,129
8,503
5,182
13,685
(12,556 )
42
—
(441 )
(2,904 )
(49 )
(3,352 )
(15,908 ) $
(4.46 ) $
439
503
942
3,133
1,403
4,536
(3,594)
10
(191)
(8)
(1,207)
—
(1,396)
(4,990)
(45.78)
16,253
3,568
109
The accompanying notes are an integral part of the financial statements.
84
APPLIED GENETIC TECHNOLOGIES CORPORATION
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock
Additional
Outstanding
Shares
Amount
Paid-in
Capital
In thousands
Balance, June 30, 2012 .......................................................
Beneficial conversion of notes payable to preferred stock ...
Share-based compensation expense .....................................
Net loss ................................................................................
Balance, June 30, 2013 .......................................................
Issuance of common stock, net of issuance costs .................
Reclassification of warrants to purchase stock to additional
paid-in capital ....................................................................
Conversion of convertible preferred stock to common
stock ..................................................................................
Share-based compensation expense .....................................
Net loss ................................................................................
Balance, June 30, 2014 .......................................................
Issuance of common stock, net of issuance costs .................
Share-based compensation expense .....................................
Shares issued under employee plans ....................................
Exercise of warrants .............................................................
Net loss ................................................................................
Balance, June 30, 2015 .......................................................
109 $
—
—
—
109 $
4,853
—
9,120
—
—
14,082 $
2,300
—
94
15
—
16,491 $
12,146 $
Accumulated
Deficit
(43,436) $
—
—
(4,990)
(48,426) $
—
72
25
—
12,243 $
51,796
Total
(31,290)
72
25
(4,990)
(36,183)
51,801
— $
—
—
—
— $
5
—
551
—
551
9
—
—
14 $
2
—
—
—
—
16 $
73,778
825
—
139,193 $
32,007
2,820
148
—
—
174,168 $
—
—
(15,908)
(64,334) $
—
—
—
—
(24,318)
(88,652) $
73,787
825
(15,908)
74,873
32,009
2,820
148
—
(24,318)
85,532
The accompanying notes are an integral part of the financial statements.
85
APPLIED GENETIC TECHNOLOGIES CORPORATION
STATEMENTS OF CASH FLOWS
For the fiscal years ended June 30,
2014
2013
2015
(24,318) $
(15,908 ) $
(4,990)
In thousands
Cash flows from operating activities
Net loss ........................................................................................................... $
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense ...........................................................
Depreciation and amortization ...................................................................
Fair value adjustments to warrant liabilities ..............................................
Fair value adjustments to Series B purchase rights ...................................
Changes in operating assets and liabilities:
(Increase) decrease in grants receivable ....................................................
Decrease (increase) in prepaid and other assets .........................................
Increase in accounts payable .....................................................................
(Decrease) increase in deferred revenues ..................................................
Increase (decrease) in accrued and other liabilities ...................................
Net cash used in operating activities ....................................................
Cash flows from investing activities
Purchase of property and equipment .........................................................
Purchase of and capitalized costs related to intangible assets ...................
Maturity of investments .............................................................................
Purchase of investments ............................................................................
Net cash provided by (used in) investing activities ..............................
Cash flows from financing activities
Proceeds from issuance of common stock, net of issuance costs ..............
Proceeds from exercise of common stock options .....................................
Proceeds from issuance of preferred stock and Series B purchase rights,
net of issuance costs ...............................................................................
Proceeds from exercise of convertible preferred stock warrants ...............
Proceeds from issuance of bank term note and warrants ...........................
Payment of bank term notes and capital lease ...........................................
Net cash provided by financing activities ............................................
Net increase (decrease) in cash and cash equivalents.................................
Cash and cash equivalents, beginning of period .........................................
Cash and cash equivalents, end of period ...................................................
Supplemental disclosure of cash flow information
$
2,820
376
—
—
(876)
419
228
—
1,866
(19,485)
(225)
(98)
121,079
(102,864)
17,892
32,009
148
—
—
—
—
32,157
30,564
8,623
39,187 $
825
334
441
2,904
(343 )
(1,351 )
156
(212 )
1,226
(11,928 )
(158 )
(218 )
29,500
(79,950 )
(50,826 )
51,607
194
10,683
1
—
(1 )
62,484
(270 )
8,893
8,623 $
Cash paid for interest ................................................................................. $
— $
— $
Supplemental disclosure of non-cash financing activities
Conversion of convertible preferred stock to common stock .......................... $
Conversion of Series B purchase rights to Series B-3 convertible preferred
$
stock ...........................................................................................................
Conversion of preferred stock warrants to common stock warrants ............... $
Conversion of notes payable and accrued interest Series B-1 convertible
$
preferred stock ............................................................................................
Conversion of Series B purchase rights to Series B-2 convertible preferred
stock ...........................................................................................................
$
— $
73,787 $
—
$
— $
— $
—
$
5,000 $
551 $
— $
— $
The accompanying notes are an integral part of the financial statements.
86
25
285
8
1,207
41
(229)
674
212
(10)
(2,777)
(352)
(179)
50
(14,000)
(14,481)
—
—
25,727
—
507
(857)
25,377
8,119
774
8,893
39
—
—
—
741
834
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2015, 2014 AND 2013
(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 primarily developing gene therapy products designed to transform the lives of patients with severe
inherited orphan diseases in ophthalmology. On April 1, 2014, AGTC completed its initial public offering (“IPO”) and now
trades on NASDAQ under the ticker symbol AGTC.
On July 30, 2014, the Company completed a follow on public offering in which it sold 2,000,000 shares of common stock at a
public offering price of $15.00 per share. On August 1, 2014, the Company sold an additional 300,000 shares of common stock
at a public offering price of $15.00 per share pursuant to the full exercise of an overallotment option granted to the underwriters
in connection with the follow on offering. The aggregate net proceeds received by the Company from the follow on offering,
including exercise of the overallotment option, amounted to $32.0 million, net of underwriting discounts and commissions and
other offering expenses.
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 June 30, 2015, the Company had an accumulated deficit of $88.7 million and expects to
continue incurring losses for the foreseeable future. The Company has financed its operations to date primarily through sales of
common stock, private placements of its convertible preferred stock, collaborations, bank debt, convertible debt financings,
grant funding and cash receipts for sponsored research. At June 30, 2015, the Company had cash and cash equivalents and
investments of $85.3 million and believes that these capital resources, combined with the net cash proceeds from its
collaboration with Biogen (see Note 14 of notes to the financial statements), will be sufficient to allow it to fund its operations
for at least the next two years.
(2) Summary of Significant Accounting Policies:
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the
United States of America (“GAAP”) and, in the opinion of management, include all adjustments necessary for a fair
presentation of the Company’s financial position, results of operations, and cash flows for each period presented.
Certain amounts reported previously have been reclassified to conform to the current year presentation, with no effect on
stockholders’ equity or net loss as previously presented.
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.
Use of estimates
The preparation of financial statements in conformity with GAAP 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.
87
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2015, 2014 AND 2013
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. 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 other income (expense) and a new cost basis in the investment is
established.
Concentrations of Credit Risk
The Company maintains its cash and cash equivalents and certificates of deposit with two financial institutions that are federally
insured. Some of these financial instruments are in excess of federally insured limits and as a result, could potentially expose
the Company to significant concentrations of credit risk. To date, the Company has not experienced any losses associated with
this credit risk and continues to believe that this exposure is not significant. The Company invests its excess cash primarily in
money market funds, certificates of deposit, and debt instruments of corporations and U.S. government agencies. These
investments generally mature within a two year period from their purchase date, in line with the Company’s investment policy
that seeks to maintain adequate liquidity and preserve capital.
Inventory
Purchases of clinical materials stored for master and working viral banks that remain at the sites in anticipation of their future
use at that site are charged to expense when they are incurred. Since the Company can use each of the raw materials in only a
single product, each raw material is deemed to have no future economic value independent of the development status of that
single drug.
88
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2015, 2014 AND 2013
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”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), 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 those 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 are 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.
Property and equipment
Property and equipment, consisting of laboratory equipment, furniture and fixtures, computer equipment and leasehold
improvements, are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of
the assets, which are generally three to seven years. Leasehold improvements are stated at cost and are amortized over the
shorter of the estimated useful lives of the assets or the lease term, including any renewal periods that are deemed to be
reasonably assured. Repair and maintenance costs that do not improve service potential or extend an asset’s economic life are
recorded as an expense when incurred.
Intangible assets
Intangible assets primarily include licenses and patents. The Company obtains licenses from third parties and capitalizes the
costs related to exclusive licenses that have alternative future use in multiple potential programs. The Company also capitalizes
costs related to filing, issuance, and prosecution of patents. The Company reviews its capitalized costs periodically to determine
that such costs relate to patent applications that have future value and an alternative future use, and writes off any costs
associated with patents that are no longer being actively pursued or that have no future benefit.
Amortization expense is computed using the straight-line method over the estimated useful lives of the assets, which are
generally eight to twenty years. The Company amortizes in-licensed patents and patent applications from the date of the
applicable license and internally developed patents and patent applications from the date of the initial application. Licenses and
patents converted to research use only are immediately written off to expense.
Impairment of long-lived assets
The Company reviews its long-lived assets for impairment when impairment indicators are present. If impairment indicators
exist, management determines whether impairment in value has occurred by comparing the estimated undiscounted cash flows
from future operations with the carrying values of the assets. Management considers several indicators in assessing impairment,
including trends and prospects, as well as the effects of obsolescence, demand, competition and other economic factors. No
impairment charges were recorded for each of the fiscal years ended June 30, 2015, 2014, and 2013.
Revenue recognition
The Company has primarily generated revenue through collaboration agreements, sponsored research arrangements with
nonprofit organizations for the development and commercialization of product candidates and revenues from federal research
and development grant programs. The Company recognizes revenue when amounts are realized or realizable and earned.
Revenue is considered realizable and earned when the following criteria are met: (1) persuasive evidence of an arrangement
89
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2015, 2014 AND 2013
exists; (2) delivery has occurred or services have been rendered; (3) the price is fixed or determinable; and (4) collection of the
amounts due are reasonably assured.
Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s balance
sheets. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as
current liabilities. The Company recognizes revenue for reimbursements of research and development costs under collaboration
agreements as the services are performed. The Company records these reimbursements as revenue and not as a reduction of
research and development expenses, as the Company has the risks and rewards as the principal in the research and development
activities.
The Company evaluates the terms of sponsored research agreement grants and federal grants to assess the Company’s
obligations and if the Company’s obligations are satisfied by the passage of time, revenue is recognized on a straight-line basis.
In situations where the performance of the Company’s obligations has been satisfied when the grant is received, revenue is
recognized upon receipt of the grant. Certain grants contain refund provisions. The Company reviews those refund provisions to
determine the likelihood of repayment. If the likelihood of repayment of the grant is determined to be remote, the grant is
recognized as revenue. If the probability of repayment is determined to be more than remote, the Company records the grant as a
deferred revenue liability, until such time that the grant requirements have been satisfied.
Collaboration revenue
On July 1, 2015, the Company entered into a Collaboration Agreement with Biogen. This collaboration is discussed further in
Note 14 of notes to the financial statements. The terms of this agreement and other potential collaboration or commercialization
agreements the Company may enter into generally contain multiple elements, or deliverables, which may include, among others,
(i) licenses, or options to obtain licenses, to its technology, and (ii) research and development activities to be performed on
behalf of the collaborative partner. Payments made under such arrangements typically include one or more of the following:
non-refundable, up-front license fees; option exercise fees; funding of research and/or development efforts; milestone payments;
and royalties on future product sales.
Multiple element arrangements are analyzed to determine whether the deliverables within the agreement can be separated or
whether they must be accounted for as a single unit of accounting. Deliverables under an agreement are required to be
accounted for as separate units of accounting provided that (i) a delivered item has value to the customer on a stand-alone basis;
and (ii) if the agreement includes a general right of return relative to the delivered item, delivery or performance of the
undelivered item is considered probable and substantially in the control of the vendor. The allocation of consideration amongst
the deliverables under the agreement is derived using a “best estimate of selling price” if vendor specific objective evidence and
third party evidence of fair value is not available. If the delivered element does not have stand-alone value or if the fair value of
any of the undelivered elements cannot be determined, the arrangement is then accounted for as a single unit of accounting, and
the Company recognizes the consideration received under the arrangement as revenue on a straight-line basis over the estimated
period of performance.
Milestone revenue
The Company applies the milestone method of accounting to recognize revenue from milestone payments when earned, as
evidenced by written acknowledgement from the collaborator or other persuasive evidence that the milestone has been achieved
and the payment is non-refundable, provided that the milestone event is substantive. A milestone event is defined as an event (i)
that can only be achieved based in whole or in part on either the Company’s performance or on the occurrence of a specific
outcome resulting from the Company’s performance; (ii) for which there is substantive uncertainty at the inception of the
arrangement that the event will be achieved; and (iii) that would result in additional payments being due to the Company. Events
for which the occurrence is either contingent solely upon the passage of time or the result of a counterparty’s performance are
not considered to be milestone events. A milestone event is substantive if all of the following conditions are met: (i) the
consideration is commensurate with either the Company’s performance to achieve the milestone, or the enhancement of the
value to the delivered item(s) as a result of a specific outcome resulting from the Company’s performance to achieve the
milestone; (ii) the consideration relates solely to past performance; and (iii) the consideration is reasonable relative to all the
deliverables and payment terms (including other potential milestone consideration) within the arrangement.
The Company assesses whether a milestone is substantive at the inception of the arrangement. If a milestone is deemed non-
substantive, we account for that milestone payment in accordance with the multiple element arrangements guidance and
recognize revenue consistent with the related units of accounting for the arrangement over the related performance period.
90
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2015, 2014 AND 2013
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.
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. The Company files income tax
returns in the U.S. federal jurisdiction and the state of Florida. As of June 30, 2015 and 2014, the Company did not have any
significant uncertain tax positions.
Research and development expenses
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 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 the service when the Company has not yet been invoiced or otherwise
notified 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 (“CROs”), 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 $958 thousand and $1.4 million at June 30, 2015 and 2014,
respectively, and are included within the Prepaid and other current assets line item on the balance sheets.
Share-based compensation
The Company accounts for share-based awards issued to employees in accordance with ASC Topic 718, Compensation—Stock
Compensation (“ASC 718”) 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 and accounts 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 are subject to periodic fair value re-measurement over their vesting
terms.
For purposes of calculating stock-based compensation, the Company estimates the fair value of stock options using a Black-
Scholes option-pricing model. The determination of the fair value of share-based payment awards utilizing the Black-Scholes
model is affected by the Company’s stock price and a number of assumptions, including expected volatility, expected life, risk-
free interest rate and expected dividends. The expected volatility is primarily based on the historical volatility of peer company
data while the expected life of the stock options is based on historical and other economic data trended into the future. The risk-
free interest rate assumption is based on observed interest rates appropriate for the expected terms of the Company’s stock
options. The dividend yield assumption is based on the Company’s history and expectation of no dividend payouts. If factors
change and the Company employs different assumptions, stock-based compensation expense may differ significantly from what
91
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2015, 2014 AND 2013
has been recorded in the past. If there is a difference between the assumptions used in determining stock-based compensation
expense and the actual factors which become known over time, specifically with respect to anticipated forfeitures, the Company
may change the input factors used in determining stock-based compensation costs for future grants. These changes, if any, may
materially impact the Company’s results of operations in the period such changes are made.
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 net loss per share calculation, preferred stock, stock options, and warrants are considered to
be common stock equivalents but have been excluded from the calculation of diluted net loss per share, as their effect would be
anti-dilutive for all periods presented. Therefore, basic and diluted net loss per share was the same for all periods presented.
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.
92
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2015, 2014 AND 2013
New Accounting Pronouncements
In August 2014, the FASB issued Accounting Standard Update No. 2014-15, Disclosure of Uncertainties About an Entity’s
Ability to Continue as a Going Concern. The amendments require management to perform interim and annual assessments of an
entity’s ability to continue as a going concern and provides guidance on determining when and how to disclose going concern
uncertainties in the financial statements. The standard applies to all entities and is effective for annual and interim reporting
periods ending after December 15, 2016, with early adoption permitted. The Company is currently evaluating the impact that
this new guidance will have on its financial statements.
In May 2014, the FASB issued guidance that requires companies to recognize revenue to depict the transfer of goods or services
to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods
or services. It also requires enhanced disclosures about revenue, provides guidance for transactions that were not previously
addressed comprehensively, and improves guidance for multiple-element arrangements. The guidance applies to any entity that
either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial
assets unless those contracts are within the scope of other standards. In July 2015, the FASB delayed the effective date of this
guidance by one year. The guidance is now effective for public companies for annual periods beginning after December 15,
2017 as well as interim periods within those annual period using either the full retrospective approach or modified retrospective
approach. The Company is currently evaluating the impacts of the new guidance on its financial statements.
(3)
Investments:
Cash in excess of our immediate requirements is invested in accordance with the Company’s investment policy that primarily
seeks to maintain adequate liquidity and preserve capital.
The following table summarizes the Company’s investments by category as of June 30, 2015 and 2014:
In thousands
Investments - Current:
Certificates of deposit ............................................................................................................ $
Debt securities - held-to-maturity ..........................................................................................
$
Investments - Noncurrent:
Certificates of deposit ............................................................................................................ $
Debt securities - held-to-maturity ..........................................................................................
$
June 30,
2015
June 30,
2014
10,776 $
11,678
22,454 $
5,310 $
18,319
23,629 $
64,450
—
64,450
—
—
—
As of June 30, 2015, a summary of the debt securities classified as held-to-maturity is as follows:
Amortized Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
5,244 $
6,434
11,678 $
16,816 $
1,503
18,319 $
2 $
1
3 $
2 $
—
2 $
—
(3)
(3) $
(8) $
—
(8) $
5,246
6,432
11,678
16,810
1,503
18,313
In thousands
Investments - Current:
U.S. government and agency obligations ......................................... $
Corporate obligations .......................................................................
$
Investments - Noncurrent:
U.S. government and agency obligations ......................................... $
Corporate obligations .......................................................................
$
93
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2015, 2014 AND 2013
The amortized cost and fair value of held-to-maturity debt securities as of June 30, 2015, by contractual maturity, were as
follows:
In thousands
Due in one year or less ........................................................................................................... $
Due after one year through two years ....................................................................................
$
Amortized Cost
Fair Value
11,678 $
18,319
29,997 $
11,678
18,313
29,991
The Company believes that the unrealized losses disclosed above were primarily driven by interest rate changes rather than by
unfavorable changes in the credit ratings associated with these securities and as a result, 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 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 an other-than-temporary impairment. Therefore, the Company believes these losses
to be temporary. As of June 30, 2015, the Company did not have any intent to sell any of the securities that were in an
unrealized loss position at that date.
(4) Fair Value Measurements:
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
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.
Certificates of Deposit. The Company’s certificates of deposit are placed through an account registry service. The fair value
measurement of the Company’s certificates of deposit is considered Level 2 of the fair value hierarchy as the inputs are based on
quoted prices for identical assets in markets that are not active. The carrying amounts of the Company’s certificates of deposit
reported in the balance sheets approximate fair value.
Debt securities – held-to-maturity. The Company’s investments in debt securities classified as held-to-maturity generally
include U.S. Treasury Securities, government agency obligations, commercial paper, and corporate obligations. U.S. Treasury
Securities 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 fair values of U.S. government agency obligations, commercial paper
and corporate obligations are generally determined using recently executed transactions, broker quotes, market price quotations
where these are available or other observable market inputs for the same or similar securities. As such, the Company classifies
its investments in U.S. government agency obligations, commercial paper and corporate obligations within Level 2 of the
hierarchy.
94
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2015, 2014 AND 2013
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
June 30, 2015
Cash and cash equivalents ..................................................... $
Certificates of deposit ...........................................................
Held-to-maturity investments:
Quoted prices
in active
markets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Total Fair
Value
Total
Carrying
Value
39,187 $
—
— $
16,086
— $
—
39,187 $
16,086
39,187
16,086
Corporate obligations ......................................................
U.S. government and agency obligations ........................
Total assets ................................................................. $
—
3,824
43,011 $
7,935
18,232
42,253 $
—
—
— $
7,935
22,056
85,264 $
7,937
22,060
85,270
June 30, 2014
Cash and cash equivalents ..................................................... $
Certificates of deposit ...........................................................
Total assets ................................................................. $
8,623 $
—
8,623 $
— $
64,450
64,450
— $
—
$
8,623 $
64,450
73,073 $
8,623
64,450
73,073
(5) Property and Equipment, Net:
Property and equipment consists of the following:
In thousands
Laboratory equipment ........................................................................................................... $
Office equipment...................................................................................................................
Leasehold improvements ......................................................................................................
Property and equipment, gross ..............................................................................................
Less: Accumulated depreciation and amortization ...............................................................
Property and equipment, net ................................................................................................. $
At June 30,
2015
2014
1,246
$
152
8
1,406
(928 )
$
478
1,085
92
8
1,185
(804)
381
Depreciation and amortization expense of $126 thousand, $92 thousand and $59 thousand was recorded for each of the fiscal
years ended June 30, 2015, 2014 and 2013, respectively.
(6)
Intangible Assets, Net:
Intangible assets subject to amortization consist of the following:
In thousands
Licenses .......................................................................................................... $
Patents .............................................................................................................
Other ...............................................................................................................
Intangible assets, net ....................................................................................... $
At June 30, 2015
Cost
Accumulated
Amortization
1,180 $
1,935
73
3,188 $
832 $
875
33
1,740 $
Net of
Accumulated
Amortization
348
1,060
40
1,448
95
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2015, 2014 AND 2013
In thousands
Licenses .......................................................................................................... $
Patents .............................................................................................................
Other ...............................................................................................................
Intangible assets, net ....................................................................................... $
At June 30, 2014
Accumulated
Amortization
Net of
Accumulated
Amortization
Cost
1,143 $
1,879
54
3,076 $
751 $
719
20
1,490 $
392
1,160
34
1,586
Amortization expense related to intangible assets for the years ended June 30, 2015, 2014 and 2013 was $250 thousand, $242
thousand and $226 thousand, respectively.
Estimated amortization expense (in thousands) for the next five years and thereafter is as follows:
Fiscal Year Ending June 30,
2016 .................................................................................................................................................................... $
2017 ....................................................................................................................................................................
2018 ....................................................................................................................................................................
2019 ....................................................................................................................................................................
2020 ....................................................................................................................................................................
Thereafter ............................................................................................................................................................
$
Amount
229
226
217
176
174
426
1,448
(7) Share-based Compensation Plans:
The Company uses stock options and awards of restricted stock 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. As of June 30, 2015, the total number of shares available for issuance under the 2013 Equity and
Incentive Plan was 1,161,082.
The Compensation Committee of the Board of Directors, as the plan administrator, has the authority to select the individuals to
whom share-based awards are granted and to determine the terms of each award, including (i) the number of shares of common
stock subject to a stock option or restricted share award; (ii) the date on which the stock option becomes exercisable; (iii) the
option exercise price, which, in the case of incentive stock options, must be at least 100% (110% in the case of incentive stock
options granted to a stockholder owning in excess of 10% of the Company’s stock) of the fair market value of the common stock
as of the date of grant; (iv) the vesting term; and (v) the duration of the option (which, in the case of incentive stock options,
may not exceed ten years). Employee options typically vest over a three- or four-year period.
96
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2015, 2014 AND 2013
A summary of the stock option activity is as follows:
(In thousands, except per share amounts)
Outstanding, beginning of year .................................
Granted ........................................................................
Exercised .....................................................................
Terminated ..................................................................
Outstanding, end of year ...........................................
Vested, end of year .....................................................
Exercisable, end of year .............................................
Weighted average fair value of options granted
2015
Weighted
Average
Exercise
Price
Shares
For the years ended June 30,
2014
Weighted
Average
Exercise
Price
Shares
2013
Weighted
Average
Exercise
Price
Shares
6.21
19.58
3.24
6.43
11.83
1,024 $
615
(46)
(109)
1,484 $
474
424
380 $
715
(61)
(10)
1,024 $
200
200
1.45
8.45
3.24
3.50
6.21
3.50
0.35
—
—
1.45
133 $
247
—
—
380 $
153
153
during the year........................................................
$
14.39
$
6.18
$
0.21
The following table summarizes information about stock options outstanding:
(Number of options in thousands; remaining lives in years)
Exercise Price
$0.35 to $4.90 ..................................................................................
$12.00 to $14.08 ..............................................................................
$16.00 to $19.87 ..............................................................................
$20.00 to $24.62 ..............................................................................
At June 30,
2015
Weighted
Average
2014
Weighted
Average
Number of
Options
Contractual Life Number of
Options
Remaining
Contractual Life
Remaining
581
288
436
179
1,484
7.07
8.72
9.50
9.58
712
312
—
—
1,024
The following table summarizes information about stock options exercisable:
Exercise Price
$0.35 to $4.90 .......................................................................................................................
$12.00 to $14.08 ...................................................................................................................
$16.00 to $19.87 ...................................................................................................................
$20.00 to $24.62 ...................................................................................................................
At June 30,
2015
2014
Number of Options
(in thousands)
333
91
—
—
424
8.57
9.78
—
—
194
6
—
—
200
As of June 30, 2015, the aggregate intrinsic value of all outstanding stock options was $7.8 million and for exercisable stock
options was $4.3 million. The intrinsic value per option at June 30, 2015 is calculated as the difference between the exercise
price of the underlying option and the closing price of the Company’s common stock of $15.34 on that date, and applies only to
those awards having an exercise price currently below this closing price. The total fair value of options that vested during the
fiscal years ended June 30, 2015, 2014, and 2013 was $1.9 million, $280 thousand, and $43 thousand, respectively.
Unrecognized compensation expense related to non-vested employee stock options amounted to $8.3 million as of June 30,
2015. Such compensation expense is expected to be recognized over a weighted-average period of 3.2 years.
97
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2015, 2014 AND 2013
In accounting for stock options to non-employees, the fair value of services related to the options granted are generally recorded
as an expense as these services are provided to the Company over the relating service periods. The Company re-measures any
non-vested, non-employee options to fair value at the end of each reporting period using the Black-Scholes pricing model.
Share-based expense related to stock options awarded to employees, non-employee directors and consultants amounted to $2.3
million, $825 thousand and $25 thousand for the fiscal years ended June 30, 2015, 2014 and 2013, respectively.
In addition, during the fiscal year ended June 30, 2015, the Company granted a total of 48 thousand restricted shares of common
stock to employees and non-employee consultants and recorded share-based expense of $524 thousand associated with these
awards. The Company did not record any expense associated with restricted shares of common stock during the fiscal years
ended June 30, 2014 and 2013.
Total share-based expense associated with stock options and restricted shares of common stock was allocated as follows:
(In thousands)
General and administrative ............................................................................. $
Research and development ..............................................................................
$
For the fiscal years ended June 30,
2014
2013
2015
1,912 $
908
2,820 $
$
748
77
$
825
14
11
25
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
Dividend yield ................................................................................
Expected term ................................................................................ 6.00 to 10.00 years
Risk-free interest rate .....................................................................
Expected volatility .........................................................................
1.49% to 2.58%
85.68%
0.00%
2015
0.00 %
0.00%
6.00 to 10.00 years 6.25 to 10.00 years
1.37% to 1.40%
63.23%
2.04% to 2.31%
85.00 %
Fiscal Years Ended
June 30,
2014
2013
The dividend yield is based upon the assumption that the Company will not declare a dividend over the life of the options. Since
adopting ASC 718, the Company has been unable to use historical employee exercise and option expiration data to estimate the
expected term assumption for the Black-Scholes grant-date valuation. The Company therefore has utilized the “simplified”
method, as prescribed by the SEC’s Staff Accounting Bulletin No. 107, Share-Based Payment, to estimate on a formula basis
the expected term of our stock options considered to have “plain vanilla” characteristics. The risk-free interest rate is based on
the U.S. Treasury yield curve on the date of valuation. As a relatively new public company, the Company does not have
sufficient history to estimate the volatility of its common stock price or the expected life of the options. The Company calculates
expected volatility based on reported data for similar publicly traded companies for which historical information is available and
will continue to do so until the historical volatility of its common stock is sufficient to measure expected volatility for future
option grants. The group of similar publicly traded companies was determined based upon companies considered to be direct
competition or having been presented by independent parties as a “comparable” company based upon market sector. In
determining this group, the Company has excluded “large-cap” entities. Forfeitures are estimated at the time of the grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Share-based compensation expense
recognized in the statements of operations for the fiscal years ended June 30, 2015, 2014 and 2013 does not reflect tax related
effects on stock-based compensation given the Company’s historical and anticipated operating losses and offsetting changes in
its valuation allowance that fully reserves against potential deferred tax assets.
(8) Commitments and Contingencies:
Operating Leases
Alachua, Florida
The Company’s corporate headquarters are located in Alachua, Florida. The Company’s current leased facilities encompass
approximately 6,975 square feet of office and laboratory space. The leases for these office and laboratory facilities expire on
98
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2015, 2014 AND 2013
December 31, 2015. For the fiscal years ended June 30, 2015, 2014 and 2013, rent expense under these operating leases
amounted to $167 thousand, $123 thousand and $102 thousand, respectively.
In April 2015, the Company entered into an agreement to lease approximately 18,300 square feet of laboratory and office space
for a 10-year period expected to commence in December 2015. The Company has options to extend the term of the lease for
three additional five-year periods and also has rights to lease up to approximately 2,700 additional square feet of space within
the same facility. In conjunction with the execution of the lease agreement, the Company was provided with a tenant
improvement allowance of approximately $1.0 million, which the Company expects to use to fund leasehold improvements at
the new facility. Annual base rent at this new facility will amount to approximately $0.5 million with no annual escalation
factor for the initial 10-year term.
Cambridge, Massachusetts
In August 2015, the Company entered into a two-year lease to occupy approximately 3,000 square feet of office and laboratory
space in Cambridge, Massachusetts. This new facility, located at One Kendall Square, will focus primarily on business
development, pharmacology, and basic research and development. Annual base rent at this facility will amount to
approximately $0.3 million.
Future annual minimum lease payments (in thousands) under non-cancelable operating leases, including the new facility in
Cambridge, are as follows:
Fiscal Year Ending June 30,
2016 .................................................................................................................................................................... $
2017 ....................................................................................................................................................................
2018 ....................................................................................................................................................................
2019 ....................................................................................................................................................................
2020 ....................................................................................................................................................................
Thereafter ............................................................................................................................................................
$
Amount
502
625
456
421
421
2,281
4,706
License and Other Agreements
Under various agreements, the Company will be required to pay royalties and milestone payments upon the successful
development and commercialization of products. The Company has entered into funding agreements with various not-for-profit
organizations. The Company may become obligated to pay royalties on net product sales of any collaboration product that it
successfully develops and subsequently commercializes or, if it out-licenses rights to a collaboration product, a specified
percentage of certain payments it receives from its licensee. The Company is not obligated to make such payments unless and
until annual sales of a collaboration product exceed a designated threshold. The Company’s obligation to make such payments
would end upon its payment of a specified amount.
The Company is also party to various agreements entered into in the ordinary course of its business, principally relating to
licensed technology. At June 30, 2015, the Company had nine license agreements with six different entities, including five with
the University of Florida Research Foundation. The Company is responsible for all costs related to preparation, filing, issuance,
prosecution and maintenance of the underlying patents covered in the license agreements. The Company is required to pay
minimum annual royalty and license maintenance for all licenses until such time when the license is terminated by either
expiration of underlying patents or voluntary termination by either party per the agreement.
These license agreements also require future payments related to milestones or royalties on future sales of specified products.
Payments under these agreements generally become due and payable only upon achievement of certain developmental,
regulatory or commercial milestones. Because the achievement of these milestones had not occurred as of June 30, 2015, such
contingencies have not been recorded in the Company’s financial statements. Amounts related to contingent milestone payments
are not considered contractual obligations as they are contingent on the successful achievement of certain development,
regulatory and commercial milestones. There is uncertainty regarding the various activities and outcomes needed to reach these
milestones, and they may not be achieved. The Company may terminate its license agreements with zero to ninety days written
notice depending upon the terms of each specific agreement.
99
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2015, 2014 AND 2013
The Company’s expense associated with annual royalty and milestone payments was $122 thousand, $87 thousand and $61
thousand for each of the fiscal years ended June 30, 2015, 2014 and 2013, respectively. All royalty and milestone payments are
included within research and development expenses in the statement of operations.
The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to the agreements,
the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the
indemnified party, generally the Company’s business partners or customers, in connection with any U.S. patent or any copyright
or other intellectual property infringement claim by any third party with respect to the Company’s products. The term of these
indemnification agreements is generally perpetual. The maximum potential amount of future payments the Company could be
required to make under these indemnification agreements is unlimited. The Company has never incurred costs to defend
lawsuits or settle claims related to these indemnification agreements. From time to time, the Company may be involved in
claims and legal actions that arise in the normal course of business. Management has no reason to believe that the outcome of
any such legal actions would have a significant adverse effect on the Company’s financial position, results of operations or cash
flows.
(9)
Income Taxes:
For the fiscal years ended June 30, 2015, 2014 and 2013, the Company did not record a current or deferred income tax expense
or benefit.
Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and
income tax purposes. The significant components of the Company’s deferred tax assets (liabilities) are comprised of the
following:
In thousands
Deferred tax assets:
At June 30,
2015
2014
Net operating loss carryforwards ..................................................................................... $
Research and development tax credit carryforwards .......................................................
Accruals and other ...........................................................................................................
Gross deferred tax assets ............................................................................................
Deferred tax asset valuation allowance ...........................................................................
Total deferred tax assets, net of valuation allowance ...........................................
Deferred tax liabilities:
Depreciation and amortization .........................................................................................
Total deferred tax liabilities .............................................................................................
Net deferred tax asset (liability) ............................................................................ $
28,559 $
7,941
418
36,918
(36,845 )
73
(73 )
(73 )
— $
22,661
1,262
238
24,161
(24,086)
75
(75)
(75)
—
As of June 30, 2015, the Company had net operating losses of approximately $74.0 million that may be applied against future
taxable income and expire in various years ranging from 2022 to 2035. As of June 30, 2015, the Company also had research
and development tax credits of approximately $7.9 million that may provide future tax benefits and expire from 2027 to 2044.
The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on
its history of operating losses, the Company has concluded that as of June 30, 2015, it is more likely than not that the benefit of
its deferred tax assets will not be realized. Therefore, any tax benefits to be realized in future years as a result of the utilization
of the Company’s net operating loss carry forwards as of June 30, 2015, computed based on statutory federal and state rates, are
completely offset by valuation allowances established because realization of the deferred tax benefits are not considered more
likely than not as of that date. The valuation allowance increased by approximately $12.8 million during the fiscal year ended
June 30, 2015, due primarily to the net operating losses generated during the period. On July 1, 2015, the Company entered into
a collaboration agreement with Biogen, under which it received a non-refundable upfront payment of $94.0 million. This
collaboration agreement is discussed in more detail in Note 14 of notes to the financial statements. The Company is currently in
the process of evaluating the income tax implications of this collaboration agreement and believes this transaction could have an
impact on management’s assessment of the realizability of deferred tax assets in future periods.
100
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2015, 2014 AND 2013
A reconciliation of income tax expense computed at the statutory federal income tax rate to income taxes as reflected in the
financial statements is as follows:
For the years ended
June 30,
2014
2013
2015
Federal income tax benefit at statutory rate ....................................................
State income tax, net of federal benefit ...........................................................
Permanent differences .....................................................................................
Research and development tax credits ............................................................
Other ...............................................................................................................
Change in valuation allowance .......................................................................
Effective income tax rate ................................................................................
(34)%
(4)%
9 %
(18)%
1 %
46 %
0 %
(34 )%
(4 )%
9 %
(2 )%
1 %
30 %
0 %
(34)%
(4)%
11%
(3)%
2%
28%
0%
Under the provisions of the Internal Revenue Code, the Company’s net operating loss and tax credit carry forwards are subject
to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit
carry forwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest
of significant shareholders over a three-year period in excess of 50 percent, as defined under Sections 382 and 383 of the
Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be
utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on
the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the
limitation in future years. Since its inception, the Company has completed several financings and sales of common stock which
may have resulted in a change in control as defined by Sections 382 and 383 of the Internal Revenue Code, or could result in a
change in control in the future.
For fiscal years through June 30, 2015, the Company generated research credits but has not conducted a study to document the
qualified activities. This study may result in an adjustment to the Company’s research and development tax credit carry
forwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax
position at June 30, 2015 and 2014. A full valuation allowance has been provided against the Company’s research and
development tax credits and, if an adjustment were to be required, this adjustment would be offset by an adjustment to the
deferred tax asset established for the tax credit carry forwards and the valuation allowance.
The Company files income tax returns in the United States and in the state of Florida. The federal and state returns are generally
subject to tax examinations for the tax years ended June 30, 2011 through June 30, 2015. To the extent the Company has tax
attribute carry forwards, the tax years in which the attribute was generated may still be adjusted upon examination by the
Internal Revenue Service, or state authorities, to the extent such attributes are utilized in a future period.
The Company’s policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. As of
June 30, 2015 and 2014, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have
been recognized in the Company’s statements of operations for any of the fiscal years ended June 30, 2015, 2014 and 2013.
(10) Accrued Expenses:
Accrued expenses as of June 30, 2015 and 2014 consisted of the following:
In thousands
Research and development-related ....................................................................................... $
Compensation-related ...........................................................................................................
Other .....................................................................................................................................
$
At June 30,
2015
2014
2,679 $
772
—
3,451 $
1,008
575
2
1,585
101
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2015, 2014 AND 2013
(11) Defined Contribution Plan:
The Company sponsors an employee 401(k) salary deferral plan (“401(k) Plan”) that covers substantially all of its employees and is
administered through its staff leasing company. Under the 401(k) Plan, employees may elect to defer up to 25% of their
compensation per year (subject to a maximum limit prescribed by federal tax law) and the Company matches a portion of such
employee contributions up to a maximum of 4% of the eligible salary. The Company’s matching contributions to the 401(k) Plan
amounted to $90 thousand, $60 thousand and $40 thousand for each of the fiscal years ended June 30, 2015, 2014 and 2013,
respectively.
(12) Common Stock and Stockholders’ Equity:
Reverse Stock Split
On March 4, 2014, the Company effected a 1-for-35 reverse stock split of its common stock, whereby each share of common
stock, $0.001 par value, outstanding immediately prior to that date was combined, reclassified and changed into one thirty-fifth
(1/35) of a fully paid and non-assessable share of common stock. The accompanying financial statements and notes to the
financial statements give retroactive effect to the reverse split for all periods presented.
Common Stock
On April 1, 2014, the Company completed its IPO in which it sold 4,166,667 shares of common stock at a price of $12.00 per
share. The shares began trading on the Nasdaq Global Select Market on March 27, 2014. An additional 625,000 shares were sold
pursuant to the exercise of the underwriters’ over-allotment option, also at the offering price of $12.00 per share. The aggregate net
proceeds received by the Company from the offering, including exercise of the over-allotment option, amounted to $51.6 million,
net of underwriting discounts and commissions and other issuance costs incurred by the Company. Upon the closing of the IPO, all
outstanding shares of convertible preferred stock converted into 9,120,081 shares of common stock; and warrants exercisable for
convertible preferred stock were automatically converted into warrants exercisable for 49,811 shares of common stock, resulting in
the reclassification of the related convertible preferred stock warrant liability of $551 thousand to additional paid-in capital.
On July 30, 2014, the Company completed a public offering in which the Company sold 2,000,000 shares of common stock at a
public offering price of $15.00 per share. On August 1, 2014, the Company sold an additional 300,000 shares of common stock
at a public offering price of $15.00 per share pursuant to the full exercise of an overallotment option granted to the underwriters
in connection with the public offering that was completed in July 2014. The aggregate net proceeds received by the Company
from the offering, including the exercise of the overallotment option, amounted to $32.0 million, net of underwriting discounts
and commissions.
As of June 30, 2015, there were 150,000,000 shares of $0.001 par value common stock that were authorized to be issued. As of
that date, a total of 16,490,654 shares of common stock were issued, of which 16,475,654 shares were outstanding.
The following shares of common stock were reserved for future issuance as of June 30, 2015:
In thousands
Common stock warrants ..................................................................................................................................
Stock options issued and outstanding..............................................................................................................
Authorized for future grant under the 2013 Employee Stock Purchase Plan ..................................................
Authorized for future grant under the 2013 Equity and Incentive Plan ..........................................................
June 30, 2015
30
1,484
129
1,161
2,804
Former Series B purchase rights
In November 2012, the Company entered into a Series B-1, B-2 and B-3 Preferred Stock Purchase Agreement, or Series B
Purchase Agreement, which authorized the sale of up to 290,781,972 shares of convertible preferred stock in three separate
tranches of Series B-1, Series B-2 and Series B-3 preferred stock, respectively. Simultaneously with the execution of the Series
B Purchase Agreement, the Company issued and sold an aggregate of 66,147,709 shares of Series B-1 preferred stock at a price
per share of $0.1297. The Series B Purchase Agreement provided that the holders of the Series B-1 shares, or Series B holders,
were also entitled to purchase up to an aggregate of 140,542,178 shares of Series B-2 preferred stock for an aggregate purchase
102
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2015, 2014 AND 2013
price equal to $18.2 million, or second tranche, and up to an aggregate of 82,670,167 shares of Series B-3 preferred stock for an
aggregate purchase price equal to $10.7 million, or third tranche. The price per share and number of shares to be issued in
exchange for such amount was to be determined separately for each tranche by reference to which, if any, of three milestones
specified in the agreement had been satisfied by the Company.
The purchase rights were legally separable and exercisable apart from the Series B-1 shares and, because representatives of the
Series B holders held a majority of the seats on the board of directors, the decision to complete the second and third tranche was
deemed to be outside the Company’s control. The Company therefore recorded, at the time of entry into the Series B Purchase
Agreement, a Series B purchase rights liability of $1.7 million for the fair value of its obligation to sell the Series B-2 and Series
B-3 preferred stock in the second and third tranche. The Series B purchase rights liability was valued separately for each series
using the Black-Scholes option-pricing method to assign a value to the purchase right relating to that series under each of the
possible applicable valuation scenarios, depending on which milestones were met, with each scenario being assigned an
estimated probability as of the valuation date. The aggregate of these probability-weighted valuations was assigned as the value
of the purchase right for each tranche. The initial fair value of the Series B purchase rights liability was estimated to be $0.6
million for the second tranche and $1.1 million for the third tranche. The total value allocated to the Series B purchase rights
reduced the amount allocated to the carrying value of the Series B-1 preferred stock on the Company’s balance sheet.
The most significant and judgmental inputs driving the fair value of the Company’s Series B purchase rights were the
assumptions regarding the fair value of the underlying preferred shares and the volatility factor. With all other inputs constant,
an increase or decrease in the assumed fair value of the preferred shares would have resulted in a higher or lower estimate of the
fair value of the Series B purchase rights, respectively, although there would not have been a direct correlation. Similarly, an
increase or decrease in the assumed volatility factor would have resulted in a higher or lower estimate of the fair value of the
Series B purchase rights, respectively.
In April 2013, following the satisfaction by the Company of the first milestone, the Series B holders exercised their rights with
respect to the second tranche and purchased an aggregate of 122,749,639 shares of Series B-2 preferred stock at a price per
share of $0.1485, for gross cash proceeds of $18.2 million. During fiscal year 2013, the Company recorded a change in value of
the Series B purchase rights liability of $1.2 million to other expense and the $0.8 million balance of the value allocated to the
Series B-2 purchase rights liability immediately prior to the closing of the second tranche was recorded as proceeds from the
issuance of the Series B-2 preferred stock.
In October 2013, the Series B holders exercised their rights with respect to the third tranche and on November 5, 2013, the
Company sold to the Series B holders an aggregate of 58,816,897 shares of its Series B-3 preferred stock at a price per share of
$0.1823 (or $6.38 on an as-converted to common stock basis), for gross cash proceeds of $10.7 million. In connection with the
closing of the third tranche, the Company and the Series B holders amended the terms of the Series B purchase agreement to
provide that if the two remaining milestones specified in the Series B Purchase Agreement were not satisfied by September
2014, the Series B holders who continued to hold shares of Series B-3 preferred stock would be entitled to receive an aggregate
of approximately 13,387,000 additional shares of Series B-3 preferred stock. This right was extinguished upon the conversion to
common stock of all the outstanding shares of preferred stock upon closing of the Company’s initial public offering.
During the year ended June 30, 2014, the Company recorded a change in value of the Series B purchase right liability of $2.9
million to other expense, and $5.0 million allocated to the Series B-3 purchase right immediately prior to the closing of the third
tranche was reallocated to the carrying value of the Series B-3 preferred stock.
In connection with the consummation of the Company’s IPO on April 1, 2014, all Series A Preferred Stock and Series B
Preferred Stock converted into 9,120,081 shares of common stock on that date. As a result, none of the convertible series of
preferred stock were issued or outstanding at June 30, 2015 and 2014.
Former warrant liabilities
As of June 30, 2013, the Company had warrants outstanding to purchase shares of its Series A-1, Series A-1A and Series B-1
preferred stock. Because the Series A-1, Series A-1A and Series B-1 preferred stock were subject to redemption under
circumstances outside of the Company’s control, the outstanding shares of these series of preferred stock were presented as
temporary equity for those periods. Consequently, the warrants to purchase shares of Series A-1, Series A-1A and Series B-1
preferred stock were accounted for as liabilities and adjusted to fair value at the end of each reporting period. The fair value of
the warrants classified as liabilities was estimated using the Black-Scholes option pricing model. The estimates in the Black-
103
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2015, 2014 AND 2013
Scholes option pricing model were based, in part, on subjective assumptions, including stock price volatility, term of the
warrants, risk free interest rate, dividend yield, and fair value of the preferred stock underlying the warrants. The gain or loss
associated with the change in the fair value of the preferred stock warrant liability from the prior period was recognized as a
component of other (expense) income, net. The fair value of the warrants on the date of issuance, and on each financial reporting
date for those warrants classified as liabilities, was estimated using the Black-Scholes option pricing model.
Upon the closing of the Company’s initial public offering, these warrants were converted into warrants exercisable for common
stock.
(13) Quarterly Financial Information (Unaudited):
Summarized quarterly information for the two fiscal years ended June 30, 2015 and 2014, respectively, is as follows:
In thousands, except per share data
Revenue ............................................................................. $
Loss from operations .......................................................... $
Net loss .............................................................................. $
Net loss per common share, basic and diluted ................... $
First
705 $
(5,409) $
(5,381) $
(0.34) $
Fiscal Year 2015 by Quarter:
Second
Third
Fourth
652 $
(4,702) $
(4,650) $
(0.28) $
284 $
(6,391 ) $
(6,326 ) $
(0.38 ) $
713
(8,030)
(7,961)
(0.48)
In thousands, except per share data
Revenue ............................................................................. $
Loss from operations .......................................................... $
Net loss .............................................................................. $
Net loss per common share, basic and diluted ................... $
First
258 $
(1,966) $
(7,064) $
(64.81) $
Fiscal Year 2014 by Quarter:
Second
Third
Fourth
515 $
(2,905) $
(735) $
(6.74) $
232 $
(3,260 ) $
(3,588 ) $
(25.45 ) $
124
(4,425)
(4,521)
(0.32)
(14) Subsequent Events:
Collaboration with Biogen
On July 1, 2015, the Company entered into a Collaboration Agreement with Biogen, pursuant to which the Company and
Biogen will collaborate 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.
The Collaboration Agreement became effective on August 14, 2015, following expiration of the waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act.
Under the Collaboration Agreement, the Company will conduct all development activities through regulatory approval in the
United States for the XLRS program, and all development activities through the completion of the first in human clinical trial
for the XLRP program. In addition, the Collaboration Agreement provides for discovery programs targeting three indications
whereby the Company will conduct discovery, research and development activities for those additional drug candidates through
the stage of clinical candidate designation, after which, Biogen may exercise an option to continue to develop, seek regulatory
approval for and commercialize the designated clinical candidate. Under the terms of the Collaboration Agreement, the
Company, in part through its participation in joint committees with Biogen, will participate in overseeing the development and
commercialization of these specific programs.
The Company will grant Biogen an exclusive, royalty-bearing license, with the right to grant sublicenses, to use adeno-
associated virus vector technology and other technology controlled by the Company for the purpose of researching, developing,
manufacturing and commercializing licensed products developed under the Collaboration Agreement. The Company will also
grant Biogen a non-exclusive, worldwide, royalty-free, fully paid license, with the right to grant sublicenses, of its interest in
other intellectual property developed pursuant to the Collaboration Agreement.
Under the Collaboration Agreement, the Company received a non-refundable upfront payment of $94.0 million in August 2015.
As a result of the upfront payment made by Biogen, the Company became liable to various research partner institutions for total
104
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2015, 2014 AND 2013
license payments of approximately $9.4 million. These license payables are due at varying dates ranging from 15 days
following receipt of the upfront payment from Biogen to 75 days following the end of our first fiscal quarter ending September
30, 2015.
The Company is also eligible to receive payments of up to $467.5 million based on the successful achievement of future
milestones under the two lead programs and up to $592.5 million based on the exercise of the option for and the successful
achievement of future milestones under the three discovery programs. Biogen will pay revenue-based royalties for each
licensed product at tiered rates ranging from high single digit to mid-teen percentages of annual net sales of the XLRS or XLRP
products and at rates ranging from mid-single digit to low-teen percentages of annual net sales for the discovery products. Due
to the uncertainty surrounding the achievement of the future milestones, such payments were not considered fixed or
determinable at the inception of the Collaboration Agreement and accordingly, will not be recognized as revenue unless and
until they become earned. The Company achieved the first milestone under the XLRS program in late August 2015, which
triggers a milestone payment from Biogen of $5.0 million. The Company is not able to reasonably predict if and when the
remaining milestones will be achieved.
In addition to the Collaboration Agreement, on July 1, 2015, the Company also entered into an equity agreement with Biogen.
Under the terms of this equity agreement, Biogen purchased 1,453,957 shares of the Company’s common stock, at a purchase
price equal to $20.63 per share, for an aggregate cash purchase price of $30.0 million. The shares issued to Biogen represented
approximately 8.1% of the Company’s issued common stock post-issuance (based on the shares that were issued at June 30,
2015) and constitute restricted securities that may not be resold by Biogen other than in a transaction registered under the
Securities Act of 1933, as amended, or pursuant to an exemption from such registration requirement. The cash proceeds of
$30.0 million were received from Biogen in August 2015.
105
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our
reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and
reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are
designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and
procedures that we adopt outweigh their costs.
As required by Rule 13a-15(b) under the Exchange Act, an evaluation of the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of June 30, 2015 was conducted under the supervision and with
the participation of our management, including our Chief Executive Officer and Chief Financial Officer. As a result of the material
weakness in internal control over financial reporting relating to the design and operation of our closing and financial reporting
processes disclosed below, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and
procedures were not effective at the reasonable assurance level as of June 30, 2015.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate “internal control over financial reporting,” as such term is
defined under Rule 13a-15(f) of the Exchange Act. We maintain internal control over financial reporting designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Internal control over financial reporting includes maintaining records that
in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as
necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of our assets are
made in accordance with management’s authorization; and providing reasonable assurance that unauthorized acquisition, use or
disposition of our assets that could have a material effect on the financial statements would be prevented or detected on a timely basis.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Therefore, internal control
over financial reporting determined to be effective provides only reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2015. In
making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control — Integrated Framework (2013). Based on this assessment, management has concluded
that, as of June 30, 2015, a material weakness in internal control over financial reporting relating to the design and operation of our
closing and financial reporting processes still existed and, as a result, the Company did not maintain effective internal control over
financial reporting as of June 30, 2015. Notwithstanding this material weakness in internal control over financial reporting relating to
the design and operation of our closing and financial reporting processes, our management has concluded that the financial statements
included in this Annual Report on Form 10-K present fairly, in all material respects, our financial position, results of operations and
cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.
We are not required to comply with the auditor attestation requirement of Section 404 of the Sarbanes-Oxley Act while we
qualify as an “emerging growth company” as defined in the JOBS Act. Subject to certain limitations, we expect to remain an
emerging growth company under the JOBS Act for up to five years from April 1, 2014, the date of our initial public offering.
Material Weaknesses in Internal Control over Financial Reporting
Management previously identified and disclosed material weaknesses in our internal control over financial reporting at June 30,
2014 and June 30, 2013 which related to the design and operation of our closing and financial reporting processes and our accounting
106
for debt, equity and convertible instruments. Specifically, management concluded that these material weaknesses in our internal
control over financial reporting were due to the fact that we did not have the appropriate resources with the appropriate level of
experience and technical expertise to oversee our closing and financial reporting processes and to address the accounting and financial
reporting requirements related to issuances of convertible notes, preferred stock warrants, stock options, preferred stock and preferred
stock purchase rights.
In order to remediate these material weaknesses, we took the following actions in fiscal year 2015:
designed and implemented monthly manual controls to manage the accounting for our remaining debt, equity and
convertible instruments, including stock based compensation, with adequate validation and review to ensure the
reasonable accuracy of these accounts. In, addition, with effect from the beginning of fiscal 2016, we will make use of
equity compensation management software and believe this automation will further enhance the accounting processes
associated with these accounts;
we hired two additional employees during the second half of our fiscal year, including an accounting manager, to further
augment our current finance and accounting team. These new employees complement the hires that were previously
reported in our Annual Report on Form 10-K for the fiscal year ended June 30, 2014;
provided functional and system training to employees, and prepared detailed documentation reflecting the actions to be
taken in connection with the financial reporting process to clearly define key tasks and actions, as well as the positions
responsible for those tasks and actions; and
continued to formalize our accounting policies and internal controls documentation and strengthen supervisory reviews by
our management.
We have completed the documentation and review of the corrective actions described above and, as of June 30, 2015, our
management has concluded that the remediation activities implemented are sufficient to allow us to conclude that the previously
disclosed material weakness related to our accounting for debt, equity and convertible instruments no longer existed as of June 30,
2015. Management also concluded that, as of June 30, 2015, there still existed significant flaws in the design and operation of our
closing and financial reporting processes and therefore that this previously identified material weakness had not been fully remediated
as of June 30, 2015. In order to fully remediate this material weakness, we will continue to implement the corrective actions described
above, including additional procedures to improve the capture, review, approval, and recording of all transactions in the appropriate
accounting period. Management will also continue to review and make necessary changes to the overall design of our internal control
environment, as well as to policies and procedures to improve the overall effectiveness of internal control over financial reporting.
Changes in Internal Control over Financial Reporting
Except for those remedial actions described above, there was no change in our internal control over financial reporting identified
in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period
covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item will be set forth under the captions “Election of Directors,” “Executive Officers,” “Code
of Ethics,” “Directors—Audit Committee Financial Expert” and “Corporate Governance” in our definitive proxy statement for the
fiscal year 2015 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission no later than 120 days
after the end of our fiscal year (the “2015 Proxy Statement”), and is incorporated herein by reference.
We are also required under Item 405 of Regulation S-K to provide information concerning delinquent filers of reports under
Section 16 of the Securities and Exchange Act of 1934, as amended. This information will be set forth under the caption “Section
16(a) Beneficial Ownership Reporting Compliance” in our 2015 Proxy Statement, and is incorporated herein by reference.
107
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be set forth under the captions “Executive Officers—Executive Compensation” in our
2015 Proxy Statement and is incorporated herein by reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by Item 403 of Regulation S-K will be set forth under the caption “Security Ownership of Certain
Beneficial Owners and Management” in our 2015 Proxy Statement, and is incorporated herein by reference.
We have two equity compensation plans under which awards are currently authorized for issuance, our 2013 Equity and
Incentive Plan and our 2013 Employee Stock Purchase Plan. In connection with the consummation of our initial public offering in
April 2014, our board of directors terminated any new offerings under our 2001 Stock Option Plan and our 2011 Stock Incentive Plan.
Each of our 2013 Equity and Incentive Plan, our 2013 Employee Stock Purchase Plan, our 2001 Stock Option Plan and our 2011
Stock Incentive Plan was approved by our stockholders prior to our initial public offering in 2014. The following table provides
information regarding securities authorized for issuance as of June 30, 2015 under our equity compensation plans.
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights, and Weighted-average exercise
vesting of outstanding price of outstanding options, future issuance under equity
Number of securities
remaining available for
Plan category
restricted stock units
(a)
warrants and rights
(b)
compensation plans
(c)
Equity compensation plans approved by security holders .....
Equity compensation plans not approved by
security holders ..............................................................
Total .............................................................................
1,514,240 $
— $
1,514,240 $
11.75
—
11.75
1,289,653 (1)
—
1,289,653
(1)
Includes 1,161,082 shares issuable under our 2013 Equity and Incentive Plan, which may be issued in the form of options,
restricted stock, unrestricted stock, performance share awards or other equity-based awards, and 128,571 shares issuable under
our 2013 Employee Stock Purchase Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORS INDEPENDENCE
The information required by this item will be set forth under the caption “Executive Officers—Certain Relationships and
Related Transactions” and “Corporate Governance” in our 2015 Proxy Statement, and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item will be set forth under the caption “Independent Registered Public Accounting Firm” in
our 2015 Proxy Statement, and is incorporated herein by reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as a part of this Report:
PART IV
(1) Financial Statements —See Index to Financial Statements and Financial Statement Schedule at Item 8 on page 104 of this
Annual Report on Form 10-K.
(2) Financial Statement Schedules —See Index to Financial Statements and Financial Statement Schedule at Item 8 on
page 104 of this Annual Report on Form 10-K. All other schedules are omitted because they are not applicable or not required.
108
(3) Index to Exhibits.
Exhibit
number
Description
3.1
3.2
4.1
10.1**
10.2**
10.3*
10.4*
10.5*
10.6*
Fifth Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to
the Registrant’s Current Report on Form 8-K filed with the SEC on April 1, 2014)
Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s Current
Report on Form 8-K filed with the SEC on April 1, 2014)
Specimen certificate evidencing shares of common stock (incorporated by reference to Exhibit 4.1 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-193309))
Lease Agreement made as of April 10, 2015, by and between Alachua Foundation Park Holding Company, LLC and
Applied Genetic Technologies Corporation
Employment Agreement dated as of May 27, 2015 between Applied Genetic Technologies Corporation and Mark S.
Shearman
Employment Agreement dated as of January 29, 2015 between Applied Genetic Technologies Corporation and Stephen
W. Potter (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2015 (File No. 001-36370))
Separation Agreement dated as of March 3, 2015 between Applied Genetic Technologies Corporation and Daniel L.
Menichella (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q/A (Amendment
No. 1) for the quarter ended March 31, 2015 (File No. 001-36370))
Employment Agreement dated as of September 26, 2014 between Applied Genetic Technologies Corporation and
Susan B. Washer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, event date
September 26, 2014, filed on October 2, 2014 (File No. 001-36370))
Employment Agreement dated as of September 26, 2014 between Applied Genetic Technologies Corporation and Jeffrey
D. Chulay (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, event date
September 26, 2014, filed on October 2, 2014 (File No. 001-36370))
10.7**†
Collaboration and License Agreement dated as of July 1, 2015 by and between Biogen MA Inc., and Applied Genetic
Technologies Corporation
10.8**
Common Stock Purchase Agreement dated as of July 1, 2015 by and between Biogen MA Inc., and Applied Genetic
Technologies Corporation
10.9**†
Manufacturing License and Technology Transfer Agreement dated as of July 1, 2015 by and between Biogen MA Inc.,
and Applied Genetic Technologies Corporation
10.10**†
Second Amendment to Non-exclusive License Agreement, made and effective as of June 29, 2015, by and between The
UAB Research Foundation, Inc. and Applied Genetic Technologies Corporation
10.11**†
Omnibus Amendment to Standard Exclusive License Agreement with Sublicensing Terms, made and effective as of July
1, 2015, by and between the University of Florida Research Foundation, Inc., the University of Florida Board of
Trustees, John Hopkins University and Applied Genetic Technologies Corporation
10.12**†
Omnibus Amendment to Standard Exclusive License Agreement with Know How and Standard Non-Exclusive License
Agreement, made and effective as of June 30, 2015, by and between the University of Florida Research Foundation, Inc.
and Applied Genetic Technologies Corporation
10.13
Lease Agreement made as of September 19, 2011, by and between Thomson-Davis Enterprises, LLC and Applied
Genetic Technologies Corporation (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement
on Form S-1 (File No. 333-193309))
109
Exhibit
number
10.14†
10.15†
10.16†
10.17†
10.18†
10.19†
10.20†
10.21†
10.22†
10.23
10.24*
10.25*
10.26*
10.27*
10.28
10.29
Description
Exclusive License Agreement with Sublicensing Terms, effective as of September 25, 2001, by and between the
University of Florida Research Foundation, Inc. and Applied Genetic Technologies Corporation (incorporated by
reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-193309))
Restated Amendment to License Agreement made and, effective as of January 31, 2005, by and between the University
of Florida Research Foundation, Inc. and Applied Genetic Technologies Corporation (incorporated by reference to
Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1 (File No. 333-193309))
First Amendment After Restated Amendment to License Agreement, made and effective as of November 28, 2007, by and
between the University of Florida Research Foundation, Inc. and Applied Genetic Technologies Corporation (incorporated
by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form S-1 (File No. 333-193309))
Standard Exclusive License Agreement with Sublicensing Terms, effective as of October 7, 2003, by and between the
University of Florida Research Foundation, Inc., Johns Hopkins University and Applied Genetic Technologies
Corporation (incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form S-1 (File No.
333-193309))
First Amendment to Standard Exclusive License Agreement with Sublicensing Terms, made as of November 2004, by
and between the University of Florida Research Foundation, Inc., Johns Hopkins University and Applied Genetic
Technologies Corporation (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form
S-1 (File No. 333-193309))
Second Amendment to Standard Exclusive License Agreement with Sublicensing Terms, made as of February 25, 2009,
by and among Applied Genetic Technologies Corporation, the University of Florida Research Foundation, Inc. and
Johns Hopkins University (incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form
S-1 (File No. 333-193309))
Non-Exclusive License Agreement with Sublicensing Terms, made as of January 19, 2006, by and between The UAB
Research Foundation, Inc. and Applied Genetic Technologies Corporation (incorporated by reference to Exhibit 10.8 to
the Registrant’s Registration Statement on Form S-1 (File No. 333-193309))
Standard Non-Exclusive License Agreement, effective as of September 18, 2012, by and between the University of
Florida Research Foundation, Inc. and Applied Genetic Technologies Corporation (incorporated by reference to Exhibit
10.10 to the Registrant’s Registration Statement on Form S-1 (File No. 333-193309))
Standard Exclusive License Agreement with Know How, effective as of November 5, 2012, by and between the
University of Florida Research Foundation, Inc. and Applied Genetic Technologies Corporation (incorporated by
reference to Exhibit 10.11 to the Registrant’s Registration Statement on Form S-1 (File No. 333-193309))
Amended and Restated Investor Rights Agreement, dated as of November 15, 2012 (incorporated by reference to Exhibit
10.12 to the Registrant’s Registration Statement on Form S-1 (File No. 333-193309))
Applied Genetic Technologies Corporation 2001 Stock Option Plan, as amended (incorporated by reference to Exhibit
10.13 to the Registrant’s Registration Statement on Form S-1 (File No. 333-193309))
Applied Genetic Technologies Corporation 2011 Stock Incentive Plan, as amended, and forms of Incentive Stock Option
Agreement and Nonstatutory Stock Option Agreement thereunder (incorporated by reference to Exhibit 10.14 to the
Registrant’s Registration Statement on Form S-1 (File No. 333-193309))
Applied Genetic Technologies Corporation 2013 Equity And Incentive Plan (incorporated by reference to Exhibit 10.15
to the Registrant’s Registration Statement on Form S-1 (File No. 333-193309))
Applied Genetic Technologies Corporation 2013 Employee Stock Purchase Plan (incorporated by reference to Exhibit
10.16 to the Registrant’s Registration Statement on Form S-1 (File No. 333-193309))
Form of Applied Genetic Technologies Corporation Warrant to Purchase Shares of Series A-1 Preferred Stock
(incorporated by reference to Exhibit 10.17 to the Registrant’s Registration Statement on Form S-1 (File No. 333-
193309))
Form of Applied Genetic Technologies Corporation Warrant to Purchase Shares of Series B-1 Preferred Stock
(incorporated by reference to Exhibit 10.18 to the Registrant’s Registration Statement on Form S-1 (File No. 333-
193309))
110
Exhibit
number
10.30
10.31
10.32
10.33
10.34
10.35
10.36†
10.37†
10.38*
10.39†
10.40*
Description
Warrant to Purchase Shares of Series A-1 Preferred Stock of Applied Genetic Technologies Corporation issued to
Silicon Valley Bank and effective on September 23, 2005 (incorporated by reference to Exhibit 10.19 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-193309))
Warrant to Purchase Shares of Series A-1 Preferred Stock of Applied Genetic Technologies Corporation issued to
Silicon Valley Bank and effective on June 30, 2006 (incorporated by reference to Exhibit 10.20 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-193309))
Warrant to Purchase Shares of Series A-1 Preferred Stock of Applied Genetic Technologies Corporation issued to Square
1 Bank on July 6, 2010 (incorporated by reference to Exhibit 10.21 to the Registrant’s Registration Statement on Form
S-1 (File No. 333-193309))
Warrant to Purchase Shares of Series B-1 Preferred Stock of Applied Genetic Technologies Corporation issued to Square
1 Bank on August 31, 2012 (incorporated by reference to Exhibit 10.22 to the Registrant’s Registration Statement on
Form S-1 (File No. 333-193309))
Form of Indemnification Agreement for Directors Associated with an Investment Fund (incorporated by reference to
Exhibit 10.23 to the Registrant’s Registration Statement on Form S-1 (File No. 333-193309))
Form of Indemnification Agreement for Directors Not Associated with an Investment Fund (incorporated by reference to
Exhibit 10.24 to the Registrant’s Registration Statement on Form S-1 (File No. 333-193309))
Second Amendment After Restated Amendment to License Agreement, made and effective as of January 10, 2014, by and
between the University of Florida Research Foundation, Inc. and Applied Genetic Technologies Corporation (incorporated
by reference to Exhibit 10.25 to the Registrant’s Registration Statement on Form S-1 (File No. 333-193309))
Fourth Amendment to Standard Exclusive License Agreement with Sublicensing Terms, made as of December 17, 2013
by and between the University of Florida Research Foundation, Inc., Johns Hopkins University and Applied Genetic
Technologies Corporation (incorporated by reference to Exhibit 10.26 to the Registrant’s Registration Statement on
Form S-1 (File No. 333-193309))
Letter Agreement dated July 22, 2013 by and between the Company and Dan Menichella (incorporated by reference to
Exhibit 10.26 to the Registrant’s Registration Statement on Form S-1 (File No. 333-197385))
First Amendment to Non-Exclusive License, made as of March 28, 2014, by and between the UAB Research
Foundation, Inc. and Applied Genetic Technologies Corporation (incorporated by reference to Exhibit 10.27 to the
Registrant’s Registration Statement on Form S-1 (File No. 333-197385))
Letter Agreement dated January 22, 2014 by and between the Company and Larry Bullock (incorporated by reference to
Exhibit 10.28 to the Registrant’s Registration Statement on Form S-1 (File No. 333-197385))
23.1**
Consent of Independent Registered Public Accounting Firm
31.1**
31.2**
32.1**
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act
of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act
of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS‡ XBRL Instance Document
101.SCH‡ XBRL Taxonomy Extension Schema Document
101.CAL‡ XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF‡ XBRL Taxonomy Extension Definition Linkbase Document
101.LAB‡ XBRL Taxonomy Extension Label Linkbase Document
101.PRE‡ XBRL Taxonomy Extension Presentation Linkbase Document
* Management contract or compensatory plan or arrangement
111
Filed herewith
**
† We have omitted portions of this exhibit, for which confidential treatment has been granted or applied for.
‡
Pursuant to Rule 406T of Regulation S-T, the interactive files on Exhibit 101 hereto are deemed not filed or part of a registration
statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under
those sections.
112
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
Beginning
of Period
Additions
Charge
(Benefit) to
Expenses
To (from)
Other
Accounts
Deductions
End of
Period
In thousands
Deferred Tax Valuation Allowance
Year 2015 ............................................................................. $
Year 2014 ............................................................................. $
Year 2013 ............................................................................. $
24,086 $
18,956 $
17,468 $
12,759 $
5,130 $
1,488 $
— $
— $
— $
— $
— $
— $
36,845
24,086
18,956
113
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.
SIGNATURES
APPLIED GENETIC TECHNOLOGIES CORPORATION
By:
Date:
/s/ Susan B. Washer
Susan B. Washer
President and Chief Executive Officer
September 10, 2015
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the
following persons on behalf of the Company and in the capacities and on the dates indicated.
Signature
/s/ Susan B. Washer
Susan B. Washer
/s/ Lawrence E. Bullock
Lawrence E. Bullock
/s/ Scott Koenig
Scott Koenig
/s/ David Guyer
David Guyer
/s/ Ed Hurwitz
Ed Hurwitz
/s/ Ivana Magovcevic-Liebisch
Ivana Magovcevic-Liebisch
/s/ Arnold Oronsky
Arnold Oronsky
/s/ Bruce Peacock
Bruce Peacock
/s/ James Rosen
James Rosen
Title
Date
Chief Executive Officer, President and
Director (Principal Executive Officer)
September 10, 2015
Chief Financial Officer (Principal Financial and
Accounting Officer)
September 10, 2015
September 10, 2015
September 10, 2015
September 10, 2015
September 10, 2015
September 10, 2015
September 10, 2015
September 10, 2015
Director
Director
Director
Director
Director
Director
Director
114
Management Team
Board of Directors
Susan B. Washer
President, Chief Executive Officer and Director
Jeffrey Chulay, M.D.
Vice President and Chief Medical Officer
Stephen W. Potter
Chief Business Officer
Lawrence E. Bullock
Chief Financial Officer
Mark S. Shearman
Chief Scientific Officer
Scott Koenig, M.D., Ph.D.
President, Chief Executive Officer and Director of
MacroGenics, Inc.
Susan B. Washer
President, Chief Executive Officer and Director of
Applied Genetic Technologies Corporation
David R. Guyer, M.D.
Chief Executive Officer and Chairman of the Board
of Directors of Ophthotech Corporation
Ed Hurwitz
Managing Director, Precision BioVentures, LLC
Ivana Magovcevic-Liebisch, Ph.D.
Senior Vice President, Head of Global Business
Development for Teva Pharmaceutical Industries
Ltd.
Arnold L. Oronsky, Ph.D.
General Partner of InterWest Partners, LLC
Bruce A. Peacock
Venture Partner with SV Life Sciences Advisors,
LLC
James Rosen
Deputy Director of Venture Investing for the
Bill & Melinda Gates Foundation
CORPORATE AND STOCKHOLDER INFORMATION
Corporate Headquarters
Applied Genetic Technologies Corporation
11801 Research Drive, Suite D
Alachua, Florida 32615
www.agtc.com
Common Stock Listing
Our common stock is traded on the NASDAQ Global
Market under the symbol “AGTC.”
Independent Registered Public Accounting Firm
McGladrey LLP
1201 Edwards Mill Road
Raleigh, North Carolina 27607
Annual Meeting
The Company’s annual meeting of stockholders will
be held at 12:30 p.m., Eastern time, on November 19,
2015 at the offices of RR Donnelley located at 255
Greenwich Street, 3rd Floor, New York, NY 10007.
Investor Inquiries
The 2015 Annual Report, Form 10-K and other
investor information are available free of charge
through the investor portion of our website at
ir.agtc.com.
Legal Counsel
Foley Hoag LLP
Seaport West
155 Seaport Boulevard
Boston, Massachusetts 02210
Transfer Agent
Computershare Trust Company, N.A.
250 Royall Street
Canton, Massachusetts 02021