Applied Genetic Technologies Corporation
Q1 2019 Earnings Call Transcript

Published: 11 Nov 2018

[Operator:]

Good morning, and welcome to the AGTC First Quarter Fiscal Year 2019 Financial Results Conference Call. Today's call is being recorded. Before we get started, I would like to remind everyone that during this conference call, AGTC may make forward-looking statements, including statements about the company's financial results, its future business strategies and operations and its product development and regulatory process -- excuse me, progress. Actual results could differ materially from those discussed in these forward-looking statements due to a number of important factors, including uncertainty inherent in the clinical development and regulatory process and other risks described in the Risk Factors section of AGTC's annual report on Form 10-K for the fiscal year ended June 30, 2018. For introductions and opening remarks, I'd like to turn the call over to Sue Washer, Chief Executive Officer of AGTC. Please go ahead.

[Susan Washer:]

Good morning, and thank you all for joining us today. With me are Bill Sullivan, our Chief Financial Officer; and Matt Feinsod, our Chief Medical Officer. During today's call, Matt will provide a brief overview of our clinical and preclinical programs, and Bill will then review our financial results for the first quarter of fiscal year 2019. The team will then be available to answer your questions. In the first quarter of our 2019 fiscal year, we continued to advance our broad portfolio of differentiated clinical and preclinical product opportunities. Matt will discuss the specifics of these programs in a few minutes. But before he does, I'd like to take a few minutes to highlight the multiple ways AGTC has to create both, patient benefits and commercial value. Our four clinical stage programs all target rare ophthalmic diseases that result from single gene mutations for which there are no therapies that address the underlying cause of vision loss. The success of any one of these programs could be transformative for patients living with poor vision. And collectively, these programs comprise one of the most robust and exciting pipelines in the gene therapy ophthalmic arena, and they provide multiple opportunities for AGTC to establish itself as a leader in delivering real clinical solutions to address the challenges that patients with gene-based ophthalmic conditions face every day. As proud as we are of our work within the rare disease space, it's important to keep in mind that our AAV-based gene delivery platform has potential to create solutions across a broad array of ophthalmic indications and in other disease areas as well. Our preclinical optogenetics program, in collaboration with Bionic Sight, has transformative potential, enabling a wholly new approach to treating a large number of patients with diverse retinal conditions in which patients lack functional photoreceptors. Bionic Sight's innovative noninvasive retinal prothesis includes a novel algorithm for retinal coding and has the potential to replace the function otherwise provided by healthy photoreceptor. And if successful, it will provide patients with dramatic improvements in visual function. Given the excitement about the broad clinical and commercial potential for gene-based therapies and for AAV-based therapies, in particular, we will continue to evaluate the competitive landscape and pursue products and indications in which we can provide differentiated therapies that have high potential for adoption by physicians and patients. Since our inception, we believe, we have been leaders in designing, engineering, optimizing and manufacturing AAV factors for therapeutic use, and we intend to maintain our position at the forefront of the gene therapy community. With these multiple opportunities ahead of us, we were excited to welcome Bill Aliski to our board. His extensive leadership and management experience in the life science's industry and his contribution to the commercialization of a number of rare disease products will be invaluable as we advance our program towards the patients who need them. At this point, I'll turn the call over to Matt, who will provide detailed updates on each of our programs.

[Matthew Feinsod:]

Thank you, Sue. As we announced during our last call, we're now enrolling patients in our Phase I/II clinical trial, evaluating the safety and efficacy of our product candidate for the treatment of XLRP, a disease that primarily affects young boys, initially causing night blindness and constricted visual fields and, over time, leads to legal blindness in adult men. The multicenter trial, in collaboration with Biogen, is designed to study AGTC's novel recombinant AAV vector, expressing an optimized RPGR gene. We have now dosed eight patients, including two in a high-dose group. We continue to screen additional patients and are on track to complete the dose escalation phase of the XLRP trial in the first quarter of 2019. Next, I would like to provide an update on our two programs in achromatopsia. As we've discussed, achromatopsia is an inherited retinal disease in which patients suffer from poor vision, loss of color discrimination and sensitivity to light. We are actively enrolling patients in two phase I/II clinical trials of AGTC's product candidates for achromatopsia caused by mutations in the two most common achromatopsia genes, CNGB3 and CNGA3. In the CNGB3 trial, we have enrolled 10 patients across four dose groups. In the A3 trial, we have enrolled four patients across two doses. We expect to complete the dose escalation phase of the B3 trial in the first quarter of 2019 with the A3 to follow thereafter. Finally, after completing enrollment earlier this year, we continue to follow patients in our Phase I/II clinical trial in x-linked retinoschisis, XLRS, in collaboration with Biogen. XLRS, is a disease that is characterized by abnormal splitting of the layers of the retina, resulting in poor visual function in young boys. This can progress to legal blindness in adult men. Additionally, approximately 40% of XLRS patients are at risk of retinal hemorrhage or detachment at any stage of their life. Although the primary endpoint of the ongoing XLRS clinical trial is safety and available data continue to support that our XLRS product candidate is generally safe and well-tolerated, this trial will also measure biological activity by analyzing changes in a variety of visual function, retinal structure and quality of life assessments. We expect to provide top line interim 6-month data across both safety and efficacy endpoints for the 27 originally enrolled patients by the end of December of 2018. The primary 12-month data analysis will follow 6 months later. As Sue mentioned, our most advanced preclinical program is our optogenetics collaboration with Bionic Sight. With Bionic Sight, we have recently completed the preclinical studies that will support the filing of an Investigational New Drug application, or IND, that would allow clinical testing of an optogenetic therapy that combines AGTC's gene delivery technology with Bionic Sight's retinal prosthetic device. Strategy behind this combined therapeutic approach is to introduce genes for light-sensitive proteins into retinal cells and to control their activity using the light signals, potentially allowing patients without functional photoreceptors to regain visual function. The device receives images, processes them and then converts them into the same kinds of patterns of electrical pulses that the brain receives from normally functioning photoreceptors. The use of the device with the light-sensitive proteins, based on early proof-of-concept studies, may allow patients to have better visual function than other optogenetics approaches. Bionic Sight is on track to file its IND for this product candidate in the first half of 2019. I will now turn the call over to Bill Sullivan, who will briefly review our first quarter fiscal year 2019 financial results.

[William Sullivan:]

Thank you, Matt. Our first quarter 2019 financials were included in our press release, which we distributed a short while ago. For three months ended September 30, 2018, we generated net income of $1.2 million compared to a net loss of $1.4 million for the three months ended September 30, 2017. Revenues increased $3.7 million for the three months ended September 30, 2018, compared to the three months ended September 30, 2017, primarily due to increased milestone revenue of $8.4 million, which was partially offset by decreased license and related services revenues of $5.1 million. Please note that as of July 1, we adopted the provisions of ASC Topic 606. As a result, pre-funded activities and milestones will be recognized into revenue on a proportional performance basis moving forward. Increase in milestone revenue was primarily due to recognizing revenues of $8.4 million associated with receiving a $10 million milestone payment from Biogen. A decrease in license and related services revenues was primarily due to decreased pre-funded XLRP activities for the three months ended September 30, 2018, compared to the previous year. Research and development expenses for the three months ended September 30, 2018, increased $1.8 million compared to the three months ended September 30, 2017. This increase was primarily, due to incurring sublicense expense of $2.3 million associated with the milestone payment from Biogen, an increase employee-related cost, partially offset by decreased preclinical R&D spending. General and administrative expenses for the three months ended September 30, 2018, decreased $500,000 compared to the three months ended September 30, 2017, and was primarily driven by decreased employee-related and share-based compensation expenses. Moving on to our financial guidance. We ended fiscal Q1 2019 with a strong balance sheet. Total cash, cash equivalents and investments as of September 30, 2018, were $105.4 million. We believe these funds will be sufficient to allow AGTC to generate data from our ongoing clinical programs, to move our preclinical optogenetics program in collaboration with Bionic Sight into the clinic and fund our currently planned research and discovery programs for at least the next two years. We expect total cash, cash equivalents and investments as of June 30, 2019, to be between $65 million and $75 million. That concludes the team's remarks today. Operator, you now may turn over the line to question-and-answer period.

[Operator:]

[Operator Instructions] Our first question is from the line of Matthew Luchini with BMO Capital Markets.

[Matthew Luchini:]

So first, I guess on XLRP. It seems like we've had a nice making, continued good progress on enrollment and we've seen some preliminary data from others in the field. I was just wondering if you could give us a little bit of your perspective, Sue, on compare and contrast between the different approaches for you and some of the others that are out there. And then secondly, as you start thinking about the pipeline more broadly and you look at the gene therapy space in general, you think about where AGTC may want to go. How do we think about the types of opportunity you may want to proceed going forward? Should we think that new candidates, as you're surveying potential areas to go, might be less rare diseases, like an AMD or something like that? Or should we assume that the general strategy remain targeted toward orphan diseases?

[Susan Washer:]

Thank you, Matt. Those are two very good questions. So I'll start with the XLRP program differentiation, and I'll probably have Matt follow up with some comments on that. We, at the last call, commented on how we do things, that are product candidate is differentiated from the others in the space, and we released the data where we compared the capsid, tropism and expression power in nonhuman primates, which as we've discussed many times, we think is very important in ophthalmology. We're really can't comment on exact trial design comparisons. I mean, I think that they're all dose escalation. I would comment that we did have exclusive access to the large animal model in XLRP, which are two different naturally occurring dog models at the University of Pennsylvania. So I think we had some very good insight as to how doses reacted in that model, and so I think that stood us in good stead moving into the clinic. And I'm going to have Matt comment on the data that Nightstar released in their XLRP program, which we do think is really good proof of concept and shows that there can be in effect of these vectors. Matt, you want to follow up with some more information on that question?

[Matthew Feinsod:]

Generally, we wouldn't comment on competitors' data, and the data that you're seeing is the same as what we've seen. I think that some of the feedback that we've heard from me, KOLs in the field is that there certainly are some suggestion of encouraging signal there. And I think that, that is a good thing for all of the -- not all of the patients of course, but for all of the developers and products in XLRP, because as you know, while there are important differences, as Sue mentioned, between vectors, the RPGR is still the same gene that we're targeting. So I think that's sort of the take-home.

[Susan Washer:]

And then to follow up, Matt Luchini, on your second question, how to think about the programs we might add going forward, I think that we're broadly interested in how the technology can affect the disease indications and improve patients' lives. And I think we have always stated that while we're focused in orphan ophthalmology, we are more broadly interested as we learn more and more about the vector and how to target it specifically. And we do feel that -- we believe we have an advantage in our understanding of how to design these vectors in the specific indications. So we're looking very broadly at indications where this technology can make a difference in patients' lives.

[Operator:]

The next question is from the line of Jim Birchenough with Wells Fargo.

[James Birchenough:]

So just on XLRS; could you maybe talk about the different endpoints you're looking at, the nerve conduction endpoint, the OCT endpoint, the functional endpoints? And which ones you think we should focus on most? And maybe from a different perspective, which are most sensitive do you think benefit? What would emerge from the noise most easy -- most easiest?

[Susan Washer:]

Thanks for the question. So just broadly speaking, as we've talked about before, we are, as you mentioned, testing a wide number of endpoints. Because this is a first-in-man study, you want to make sure that you're collecting as much data as possible. And we also recently published and the data's -- the links to the papers are available through our website, published all the natural history study data, which measured many of the same endpoints. And I think that really shows where -- which endpoints have a little bit more variability in them compared to others, and that will stand us in good stead as we analyze the data. We've always messaged that we think that the visual fields will be potentially the most important in the XLRS area. But again, we are analyzing the data from all of the endpoints. And Matt, do you want to comment anymore on the endpoints and how we're measuring and thinking about them?

[Matthew Feinsod:]

No. I think that summarizes it. I think it's important to note that we are -- the analysis is being conducted in conjunction with our partner Biogen. And as you mentioned, it's really long list of potential modalities that we have and at our disposal to analyzing them, to try to identify and achieve an effect. And they include both visual function endpoints and also structure. As you mentioned, generally, OCT. So -- and there are various ways of looking at the OCT as well. And some are more standardized, some are actually novel ways that we've developed with the -- with our reading center.

[James Birchenough:]

And maybe just to follow up on XLRP and what we may or may not have learned from the competitor data. There were some suggestion in the Nightstar data that the cohort four and five might've had issues with the inflammatory reaction to the capsid. So I guess the question is, is that pattern of reaction to the capsid something you've seen, something you're -- you think you have a differentiation around? Just how do you think about what they highlighted as something, perhaps, blunting the effect of their gene therapy? And your thoughts how real that is if you want to go there, but certainly, how you try to avoid that.

[Susan Washer:]

Thank you, Jim, for that question because I think it is something that the field has been talking about quite a bit. And as Matt mentioned, we really can't comment on Nightstar's data. We don't have fulsome access to all of the variables and really only know what they presented, just as you do. But we do know what we've seen internally in our studies, and I'll first start talking about that capsid comparison study, where we did compare our capsid to the AAV8 and AAV5, which Nightstar mirrored GTx by using in non-human primates. And we saw no difference in inflammatory response as measured by vitreol haze in any of the capsids. The response was almost identical, and that chart we presented publicly. But then inflammatory response had no effect on the long-term expression of the vectors. And that's what we've seen in our -- all of our animal work is that while you see this vitreol haze or inflammatory response, you do not -- we have not, in our studies and all of those animal studies are now published, seen any effect on expression of the transgene. Further, we don't see any correlation in the studies that we've done and talked about at meetings in published. We don't see any correlation by the level of -- between the level of haze and inflammatory response and any specific immune response, such as neutralizing antibody titer or CTL response. And in fact, one of our principal investigators in the XLRS trial did publish safety -- talked about safety results from the 27 patients in the XLRS trial and specifically presented that there were patients that have fairly robust neutralizing antibody response and virtually no haze and patients that had marked -- mild-to-moderate hazes, but didn't have a neutralizing antibody response. So that's what we have experienced. What Nightstar is specifically experiencing and the totality of their data, we don't have a specific insight to.

[Operator:]

Our next question is coming from the line of Joe Pantginis with H.C. Wainwright.

[Joseph Pantginis:]

I was curious if you could remind us or provide any additional color with regard to pending milestones from Biogen. Are there any associated with the upcoming data catalysts or 6 months or the 12 months? I'm just wondering if you could provide that color. And then secondly, I know you did present some of the natural history data for XLRS recently. I was just curious if you could remind us during Matt's prepared comments, talking about the 40% XLRS risk of retinal detachment or splitting in patients, if that did come from part of the natural history.

[Susan Washer:]

Thank you, Joe. So I'm going to have Bill answer the questions about remaining milestones from Biogen, and then Matt, if you can address the retinal detachment percentage calculation after that.

[William Sullivan:]

Sure. So good morning, Joe. On the bio stone -- or Biogen milestone payments, we have not provided updated guidance as far as the next milestone triggering event and when that might take place. What I would focus you on is that in the XLRS program, we have about $40 million of development milestones remaining. And on the XLRP program, we have about $30 million in milestones remaining. So certainly, as we progress through the clinic, we'd provide updated guidance on when those may be triggered.

[Matthew Feinsod:]

And Joe, I didn't know, if you had any follow-up questions on that or -- I'm happy to turn to your other question about the 40%.

[Joseph Pantginis:]

No, that's great. No, go ahead please.

[Matthew Feinsod:]

Sure. So then -- this 40% number comes from the literature, actually, and it's an up to 40% number. And as you know with these orphan diseases, it's often difficult to have a precise estimate of -- when it comes to epidemiology and what these rates are, but that is the number that's reported in the literature. It was derived from natural history study. Natural history study, being smaller sample size, is difficult to really extrapolate percentages there. So -- and also the 40% is not an annual rate whereas the natural history study we filed the patient for a shorter time than what that 40% would've reflected.

[Operator:]

[Operator Instructions] Our next question is from the line of David Nierengarten with Wedbush Securities.

[David Nierengarten:]

Just a quick question on Israel. I noticed you opened up your site there, and they're screening patients. So I was just wondering, I guess how far along you are [indiscernible] patients and enrolling them ex-U.S.?

[Susan Washer:]

Israel actually participated in our natural history study for achromatopsia. So -- and also the investigator there has a long-standing practice of following a group of families with achromatopsia in his clinic, and so there's quite a wide patient pool that he had available to bring in for screening. And so we feel that, that will be a very productive site as they screen for this specific inclusion/exclusion criteria within our study. So we feel that we're imminent, as that site is activated, and patient enrollment could be occurring at any time.

[Operator:]

If there are no further questions, I will turn the line back to Sue Washer for closing remarks.

[Susan Washer:]

Thank you, operator. Our new fiscal year is off to a strong start, and we're very pleased with the progress we're making in the four ongoing clinical trials internally and with our collaborators. Continued screening and enrollment of new patients and the addition of new clinical sites reflect both the need for new therapies in these challenging ophthalmic indications and the excitement within the physician and patient communities for what our product candidates may offer to patients living with vision loss. We look forward to presenting top line 6-month data from our XLRS trial by the end of December 2018 and data from our other three clinical trials as we move through what will be an exciting 2019. As always, we would like to thank all the patients and families who are participating in our trials. Thank you.

[Operator:]

That concludes today's call. All parties may now disconnect.