Applied Genetic Technologies Corporation
Q2 2018 Earnings Call Transcript

Published: 9 Feb 2018

[Operator:]

Greetings and welcome to the Applied Genetic Technologies Corporation Second Quarter 2018 Financial Results. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Sue Washer, President and Chief Executive Officer of Applied Genetic Technologies Corporation. Thank you. You may begin.

[Sue Washer:]

Good morning and thank you all for joining us today. Bill Sullivan, our Chief Financial Officer and Matt Feinsod, our Chief Medical Officer are also with us on the call today. During our call, Matt will provide a brief overview of our clinical and preclinical programs and Bill will then review our financial results for the second quarter of fiscal year 2018. The team will then be available to answer any questions you may have. Our primary focus during the second quarter and moving forward throughout 2018 is on recruiting and enrolling patients in our 4 ongoing clinical trials. During this quarter, we more than doubled the size of our clinical team by hiring staff at all levels of the organization, including a Vice President of Clinical Operations who will be solely focused on patient enrollment. We have also increased our patient advocacy efforts, provided additional resources to our clinical sites and engaged a leading global contract research organization to provide additional support. The steps we have taken are already resulting in more patients entering and completing the screening process, which will drive patient enrollment throughout the year. I will now turn the call over to Matt who will summarize the status of our 4 ongoing clinical trials as well as provide some additional detail on our preclinical collaboration in optogenetics.

[Matt Feinsod:]

Thank you, Sue. Our most advanced clinical program, a potential treatment for X-linked retinoschisis or XLRS is being evaluated in an ongoing Phase 1/2 clinical trial as part of the company’s collaboration with Biogen. XLRS is characterized by abnormal splitting of the layers of the retina, resulting in poor visual function in young boys that can ultimately result in legal blindness in adult men. To-date, the company has completed enrollment of 22 patients. We continue to enroll adult patients in the expansion group at the highest dose level and children between the ages of 6 and 18 at the mid-dose level. As a result of the activities that Sue mentioned previously to expand the depth and breadth of our clinical operations, we also have a number of patients who are either in the screening process who are passive screening and are being scheduled for injection. We expect to fully enroll the study by the end of March 2018 and to present data after the last patient enrolled has been followed for 6 months. The primary endpoint of this clinical trial is safety and available data to-date continued to show that the XLRS product candidate has been generally safe and well-tolerated. Our next most advanced clinical programs target achromatopsia, an inherited retinal disease in which patients suffer from poor vision, loss of color discrimination and sensitivity to light. Our parallel Phase 1/2 studies are enrolling patients with mutations in the two most common achromatopsia genes called CNGA3 and CNGB3, which account for 75% of the total patient population. As previously discussed in our achromatopsia B3 trial, we completed enrollment of four patients in one dose group before electing to adjust the dose downward and we are currently scheduling patients for enrollment at this lower dose. We are also currently enrolling patients in our A3 trial and we have now dosed 1 patient. Turning to X-linked retinitis pigmentosa or XLRP, which is our fourth clinical indication and second program in collaboration with Biogen. XLRP is an inherited retinal disease caused by mutations in the RPGR gene. Children affected with XLRP are born with poor visual function that significantly affects daily activities and worsens over time. We are currently screening patients at the two sites that are opened for enrollment while the additional sites continue to site initiation activities. In addition to the above programs, we also continued to work with bionic site on the development of an optogenetic product candidate for patients with advanced retinal disease. This product would introduce genes for light sensitive proteins into retinal cells in order to control their activity using light signals and thus potentially allow patients without functional photoreceptors to regain visual function. We plan to complete the necessary preclinical work over the coming months and expect that bionic site will file an IND for this product candidate in the second half of 2018. I will now turn the call over to Bill Sullivan who will briefly review our second quarter fiscal year 2018 financial results.

[Bill Sullivan:]

Thank you, Matt. Our second quarter fiscal year 2018 financials were included in our press release which was distributed a short while ago. For the six months ended December 31, 2017, the company incurred a net loss of $6.6 million compared to net income of $4.8 million for the comparable period in 2016. The change of $11.4 million was primarily due to a $7.6 million decrease in revenues, a $4.4 million increase in R&D expenses, $1.5 million increase in G&A expenses and a change of $2 million related to income taxes. The $7.6 million decrease in revenues was primarily due to a decrease of $9 million related to amortization revenue, partly offset by $1.5 million increase in development services revenue. The decrease in amortization revenue is primarily due to reaching the end of the XLRP service period in the first quarter of fiscal year 2018. The increase in development services revenue is primarily due to activities associated with preparing to conduct a Phase 1/2 clinical trials for XLRP which are reimbursed by Biogen. So importantly, what this means is that while amortization revenue will be lower in our financials moving forward, which is a non-cash item, cash burn under the XLRP program will be lower as Biogen is now reimbursing AGTC for 100% of the cost of the Phase 1/2 XLRP clinical trial moving forward. Moving on to R&D expenses, the $4.4 million increase in R&D expenses for the six months ended December 31, 2017 is primarily due to increased spending on general, research and discovery programs, increased spending on the company’s clinical programs and increased employee related expenses associated with hiring of additional employees to support clinical trial execution and research and development activities. $1.5 million increase in G&A expenses is primarily due to increased employee related and corporate expenses to support our continued expansion. Income tax benefit for the six months ended December 31, 2017, was $0.8 million compared to income tax expense of $1.2 million in the comparable period in 2016. The income tax expense for the six months ended December 31, 2016, was due to the recognition of revenue related to the Biogen agreement for tax purposes which is accelerated compared to GAAP revenue resulting in significantly more taxable income and GAAP net income. The income tax benefit for the six months ended December 31, 2017 was primarily due to certain tax credit carry-forwards becoming refundable under the tax cuts and jobs act of 2017. Now turning to our balance sheet and financial guidance, we ended fiscal Q2 2018 with a strong balance sheet. Total cash, cash equivalents and investments as of December 31 were $119.7 million. We believe these funds will be sufficient to allow AGTC to generate data from ongoing clinical trials to move our preclinical optogenetic program in collaboration with bionic site into the clinic and fund our currently planned research and development programs for at least the next 2 years. We expect total cash, cash equivalents and investments as of June 30, 2018 to be between $90 million and $100 million. Importantly any milestone payments for Biogen that are received before June 30, 2018, would increase these projected cash balances. Notably upon dosing the first and fourth patient in the XLRP Phase 1/2 clinical trial, the company would be entitled to receive milestone payments of $2.5 million and $10 million respectively, less sublicensing fees of approximately 23%. So if one or both of these milestones is collected by June 30, projected cash, cash equivalents and investments as of June 30, 2018 would be higher by the milestone or milestones collected less applicable sublicensing fees. That concludes the team’s remarks today. Operator you may now open the line for question-and-answer period.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Matthew Luchini with BMO Capital Markets. Please proceed with your question.

[Matthew Luchini:]

Hi, good morning everyone. Thanks for the questions. So, I wanted to ask first on achromatopsia, it seems like there has been little bit of a slowdown or a low in the rate of patients rolling into the study and I wanted to ask – get a little bit more color on why that is, is it something along the lines heard it to for some reason, the site is backed up? You mentioned in the prepared remarks that you are steadily screening, does that mean that you have got enough identified to rollover into treatment? And then for XLRS, it sounds like we have an end insight here with the end of March guidance for treatment, which sort of to just say end of 3Q early 4Q release, so should we assume that, that will be at a medical meeting, maybe AAO or you think in press release how will that information actually be communicated? And then finally on XLRP, you mentioned two sites activated, could you just give us a sense as to what two steps are remaining in terms of activating the rest of the targeted sites or the next wave of targeted sites at least? Thank you.

[Sue Washer:]

Well, good morning Matt and thanks for your question. I will just give an overview on those three items and then turn it to Matt to answer the question in more detail. Certainly, with XLRS, we are on track to complete that enrollment. We have had with all of our efforts. We have got a big uptick in the throughput from that trial and you are right that it – the timing would suggest a third quarter release of data. As we have said before, our first priority would always be to try and time it to a medical meeting, because we think there is appropriate discussion at that kind of meeting, but also we wouldn’t hold up data release if we can’t find an appropriate medical meeting in the timeframe. For achromatopsia, we do have a large number of patients identified out of our natural history studies and so it’s not patient identification, but it’s more of a screening and scheduling process. We did experience some difficulties trying to convince patients to come in for screening and enrollment injection during the fall holiday period. And so that was a factor that’s now turning around. And then for XLRP, we have 3 additional sites that were moving through the initiation process and it’s just that these academic centers have lots of bureaucracy in getting the contracts signed in their IRBs and IDCs. And it’s just hard to predict that. Matt, would you like to provide some additional color, especially on the patient enrollment issue?

[Matt Feinsod:]

Sure. Thanks, Sue. So, I mean, Sue provided a pretty overview there. The only thing I would add is that as Sue mentioned just to reinforce what Sue mentioned earlier, which is regarding the support, the additional support that we provided to the clinical team over the last couple of months in both hiring and clinical site support as well as an increase in patient advocacy efforts that are really increasing the numbers of patients available for screening. And to reinforce that and that we think is really going to make an impact on the overall enrollment pace.

[Matthew Luchini:]

Okay, great. Thank you for the color.

[Operator:]

Thank you. Our next question comes from the line of Jim Birchenough with Wells Fargo Securities. Please proceed with your questions.

[Yanan Zhu:]

Hi, thanks for taking the questions. This is Yanan Zhu dialing in for Jim. The first question for the XLRS trial for the 22 patients enrolled, could you give us a sense of how many adult patients and how many children and how are they distributed in the four cohorts?

[Sue Washer:]

So, thank you Yanan for calling in and for that question. I am going to pass that question directly to Matt.

[Matt Feinsod:]

Okay. Thanks, Sue. So right now, we do have two patients in the pediatric dose and that cohort is we are looking for minimum of three just like all dose ascending cohorts and the remainder of the patients are in the adult cohort.

[Yanan Zhu:]

Got it. And then on the achromatopsia B3 trial and the fact that there was no patient enrolled in the past quarter, I just wanted to follow-up a little bit further from the previous question, is the progress in any way affected by the variability from the previous patients findings? Thanks.

[Matt Feinsod:]

So just for a correction there was a patient enrolled in the achromatopsia study between now and the last quarter, say over the past quarter I should say. And we are again as you mentioned continuing to identify patients and now that first patient has been enrolled we are expecting additional patients be enrolled in the coming months.

[Yanan Zhu:]

Thanks for the correction. And lastly for the XLRP study, in terms of anticipating the [indiscernible] of enrollment, do you expect any differences due to the nature of the disease such that the patient enrollment might be faster or slower than the XLRP, XLRS or ACHN trials. And also do you have a rough timeline for when the remaining sites might be open? Thanks.

[Matt Feinsod:]

So I think that’s a great question and it is true that the nature of the disease of all these diseases is very different. For a XLRS and achromatopsia these are mostly stable diseases whereas XLRP is a disease where patients are progressively deteriorating. And so as a result it would not be surprising that patients with XLRP would be more motivated to be interested in a clinical trial. And so how that eventually impacts our enrollment remains to be seen, but we certainly would expect to see patients who are even more motivated than the already motivated patients in the XLRS and achromatopsia studies, for home there has been historical – historically no treatments available at all. And then – I am sorry, can you repeat the second part of your question?

[Yanan Zhu:]

So just a rough sense of when the – all the site…?

[Matt Feinsod:]

When the remaining sites, right. So another great question. So I think as Sue mentioned with the remaining sites it’s difficult to predict exactly, I can tell you that they are actively involved in the initiation process. And oftentimes with academic sites in particular these processes the timing, that timing is difficult to predict going through IRBs and IBCs and other regulatory approvals at the sites. But we are working very hard and are in close and frequent communication with the sites to try to expedite the site initiations.

[Yanan Zhu:]

Great. Thanks for the answers.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from line of David Nierengarten with Wedbush Securities. Please proceed with your question.

[David Nierengarten:]

Hi, thanks for taking my question, just a couple of quick ones. On the data or anticipated data flow for XLRP and achromatopsia as you enroll patients, is this data anticipated, talking about the data similar – in a similar fashion to the data reporting plan for XLRS. And then on the optogenetic program, are you focusing on any particular degenerative diseases of the retina or is that kind of the when you open the IND and that kind of an out-comers study or maybe if you could help us how you are thinking about disease focus on that one? Thanks.

[Sue Washer:]

So, thanks Dave and good morning to you on this Friday. And I will take the first question and send the second question to Matt. So on the first question, we do have the similar data release plan that we have had with XLRS and that we wanted to get a number of patients to dose escalation and then we follow them for a period of time and then release the data and then dose the expansion group, follow them for a period of time and release the data. And that’s the same plan that we have for XLRP and achromatopsia. And then Matt, do you want to address our focus for the optogenetics program initially?

[Matt Feinsod:]

Sure. So, for the optogenetics of course, the indication is going to be patients who have very advanced disease, what specific diseases lead to those conditions, I think that we are still in the process of thinking through exactly what the protocol is going to look like and who those patients are going to be. So, advanced retinitis pigmentosa is an example of the disease where patients do progress to very end-stage and so certainly that is part of the equation, but we have not yet determined exactly which diseases would be included.

[David Nierengarten:]

Maybe a better recollection might be your clients exclude any significant diseases from that?

[Matt Feinsod:]

Again, we haven’t determined exactly which diseases we are planning to include that were excluded at this point.

[David Nierengarten:]

Okay, got it. Alright, thank you.

[Operator:]

Thank you. Our next question comes from the line of Joe Pantginis with H.C. Wainwright. Please proceed with your question.

[Joe Pantginis:]

Hey, guys. Good morning. Thanks for taking the question. Wanted to focus on the underlying support of all your clinical program, so in your prepared comments, you obviously talked about all your new recent hires and new CRO. So I wanted to focus on another major aspect of supporting these trials and that’s manufacturing. I was wondering if you can you discuss one of the – where you are right now if I have my understanding correct I believe you are already at commercial scale, you have had no hold on any of the manufacturing processes, but sort of where you are at and how you can support all your studies going forward?

[Sue Washer:]

Well, good morning, Joe and thank you for that question. Manufacturing and material availability is an area where we have a particular strength and all of the material for all of our trials, enough material to dose all of the trials and more so is already manufactured and spend released as the CMC has been reviewed by the FDA and we have never had any issues with that clinical trial. And you are right, we are already at what we feel to be commercial scale for these indications and we are now proceeding to qualify and validate our assays as well as to do pilot runs of our pivotal process so that we are fully ready to move forward upon completion of the Phase 1/2 trials.

[Joe Pantginis:]

Got it. Thanks, Sue.

[Operator:]

Thank you. Ladies and gentlemen, that completes our question-and-answer session. I would like to turn the floor back to Ms. Washer for any final comments.

[Sue Washer:]

Well, thank you and thank you all for your time today and your continued interest in our efforts to develop transformational therapies for orphan conditions. We are encouraged by the FDA’s recent landmark decision to approve the first gene therapy to treat an inherited retinal disease and are more committed than ever to advancing the development of our novel gene-based therapies for orphan indications. We are very optimistic about the remainder of 2018 and are confident that we now have the resources in place to accelerate our ongoing and planned clinical trials. AGTC has been fortunate to have tremendous support from our clinical collaborators, efficacy champions and business partners. I would like to once again thank all of our patients and families who are participated in our trials. Their service and dedication has been critical to the goal of developing effective therapies to treat unmet medical needs. Thank you again to everyone on the call for participating.

[Operator:]

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time.