Applied Genetic Technologies Corporation
Q3 2018 Earnings Call Transcript

Published: 12 May 2018

[Operator:]

Good afternoon, and welcome to the AGTC Financial Results Conference Call for the Third Quarter of Fiscal Year 2018. Today's call is being recorded. Before we get started, I would like to remind everyone that during the 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 progress. Actual results could differ materially from those discussed in the 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 Factor section of AGTC's annual report on Form 10-K for the fiscal year-ended June 30, 2017. For introductions and opening remarks, I like to turn the call over to Sue Washer, Chief Executive Officer of AGTC. Please?

[Sue Washer:]

Good afternoon, 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. 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 third quarter of fiscal year 2018. The team will then be available to answer any questions you may have. We had an extremely productive quarter and have recently achieved several key milestones. In early April, we completed our target enrollment of 27 patients in the Phase I/II clinical trial of our product candidate for X-linked retinoschisis, or XLRS, in collaboration with Biogen. About a week later, we dosed the first patient in our Phase I/II clinical trial evaluating the safety and efficacy of our investigational AAV-based gene therapy for the treatment of x-linked retinitis pigmentosa, or XLRP. And in doing so, earned a milestone payment of $2.5 million from Biogen. An additional milestone of $10 million is due upon the dosing of the fourth patient in this trial, which now has 2 sites open for enrollment, with additional sites expected to open in the next several months. I will now turn the call over to Matt, who will provide an overview of the status of our 4 ongoing clinical trials as well as provide further details about our preclinical collaboration in optogenetics.

[Matt Feinsod:]

Thank you, Sue. As Sue just noted, we were excited to report that we recently completed enrollment of patients in the Phase I/II clinical trial for our product candidate in 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 patients are at risk of retinal hemorrhage or retinal detachment at any stage of their life. Although the primary endpoint of this clinical trial is safety and available data thus far have shown that the XLRS product candidate is generally safe and well tolerated, this trial will also measure biological activity by assessing changes in visual function, retinal structure and quality of life. The company expects to provide top line 6 months data, across both safety and biological activity endpoints, by the end of 2018, with a primary analysis of a full 12-month active trial data 6 months later. As Sue also mentioned, we recently dosed the first patient in our Phase I/II clinical trial, evaluating the safety and efficacy of our product candidate for the treatment of x-linked retinitis pigmentosa, XLRP, a disease that primarily affects young boys, initially causing night blindness and constricted visual fields and over time can lead to legal blindness in adult men. This study, in collaboration with Biogen, will take place at multiple centers across the United States and assess AGTC's novel recombinant AAV vector expressing an optimized RPGR gene. Turning to our clinical programs to target achromatopsia, an inherited retinal disease, in which patients suffer from poor vision, loss of color discrimination and sensitivity to light. We are presently enrolling patients in 2 Phase I/II clinical trials of AGTC's product candidates for achromatopsia caused by mutations in the 2 most common achromatopsia genes, CNGB3 and CNGA3. In the achromatopsia CNGB3 trial, we have completed enrollment of 4 patients in one dose group and one patient at a new lower dose. In the achromatopsia CNGA3 trial, the company has enrolled one patient. And its first international site in Israel has begun genotyping their patient pool. To-date, changes in the trial protocol transitioned to a single surgeon and other related factors have impacted enrollment in these trials. As a result, we have taken several steps during the past quarter to more predictably and efficiently enroll patients in all our ongoing clinical trials. This included expanding patient recruitment efforts, initiating new clinical trial sites and enhancing clinical support and infrastructure activities. In March, we also sponsored a subretinal surgical summit that brought together highly experienced, world-renowned vitreoretinal surgeons to discuss best practices for subretinal surgery techniques used in gene therapy. Information from this summit will be used to optimize the subretinal delivery of AGTC's achromatopsia and XLRP product candidates and to educate and train additional surgeons in subretinal delivery. As a result of these efforts, we are better positioned to execute on our clinical trials and to enroll patients and provide guidance. Accordingly, we expect to complete the dose escalation portion of the CNGB3 trial and the XLRP trial in the first quarter of 2019 with the achromatopsia A3 following closely thereafter. In addition to our clinical programs, we continue to partner with Bionic Sight on development of a novel 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, potentially allowing patients without functional photoreceptors to regain some visual function. Bionic Sight is developing a vision-enhancing device, known as a retinal prosthesis. The device receives images, processes them and then converts them into the same patterns of electrical pulses that the brain normally receives from normally functioning photoreceptors. The use of the device, with the light-sensitive protein, based on early proof-of-concept studies, should allow patients to have better visual function than other optogenetic approaches. We are working with Bionic Sight to file the IND for this product candidate, which both companies expect will take place in the second half of this year. I will now turn the call over to Bill Sullivan, who'll briefly review our third quarter fiscal year 2018 financial results.

[Bill Sullivan:]

Thank you, Matt. Our third quarter fiscal year 2018 financials were included in our press release, which was distributed a short while ago. For the nine months ended March 31, 2018, the company incurred a net loss of $14.7 million compared to net income of $3.6 million for the comparable period in 2017. This change of $18.3 million was primarily due to a $12.4 million decrease in revenues, a $5.4 million increase in R&D expenses, a $2.5 million increase in G&A expenses and a $1.9 million reduction related to income taxes. The $12.4 million decrease in revenues is primarily due to a decrease of $14.1 million related to a noncash amortization revenue, partly offset by $1.9 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 I/II clinical trial for XLRP, which are reimbursed by Biogen. Moving on to R&D expenses. The $5.4 million increase in R&D expenses 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. The $2.5 million increase in G&A expenses is primarily due to increased employee-related and corporate expenses to support our continued expansion. The income tax benefit for the 9 months ended March 31, 2018, was $66,000 results from certain tax credit carryforwards of $791,000 becoming refundable under the Tax Cuts and Jobs Act 2017, offset by tax expenses of $725,000 associated with the apportionment of income to certain state jurisdictions where we do not have NOLs. Now turning to our balance sheet and financial guidance. We ended fiscal Q3 2018 with a strong balance sheet. Total cash, cash equivalents and investments, as of March 31, were $111.8 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 2 years. We expect total cash, cash equivalents investments, as of June 30, 2018, to be between $95 million and $105 million. Notably, these projected cash balances include the $2.5 million milestone payment less sublicensing fees of approximately 23%, associated with dosing of the first patient in the XLRP trial, but do not include the $10 million milestone payment less such fees associated with dosing of the fourth patient in the XLRP trial as we are uncertain to the timing of this milestone payment. That concludes the team's remarks today. Operator, you may now turn the line over for question-and-answer period.

[Operator:]

[Operator Instructions] Our first question comes from the line of Jim Birchenough of Wells Fargo.

[Yanan Zhu:]

This is Yanan Zhu in for Jim. A few questions on the subretinal delivery approach. So specifically, I think, for the ACHM B3 program, have you reached any conclusion as to the consistency of the surgical procedure, as it relates to the variability that you have preserved? And what is the plan for the subsequent patients, for example, which surgeon will deliver the drug?

[Sue Washer:]

Thank you for the question, Yanan. And I'll start and then pass it to Matt for more detail. But we have been moving to use only one surgeon for the last several patients, and we believe that this has greatly mitigated the variability that we saw originally. As Matt mentioned, we did conduct a full symposium and seminar of subretinal surgeons. And so we now have identified, trained and qualified additional subretinal surgeons. But we will roll them out very slowly over time, so that we can monitor any of that variability, again. And Matt, do you want to comment more, in more detail?

[Matt Feinsod:]

So I think you covered all the important points.

[Yanan Zhu:]

So may I then ask for the ACHM A3 trial that one patient treated as well as the XLRP trial, which also had one patient treated. Are those two patients also treated by the same surgeon who treated two patients in the B3 trial? Or if not, could you give us a sense of the overlap of the clinical sites between these three programs?

[Sue Washer:]

It was the same surgeon who treated those patients. We have not yet rolled out the additional surgeons that were qualified in March.

[Operator:]

[Operator Instructions] Our next question comes from the line of Joe Pantginis with H.C. Wainwright. Please proceed with your question.

[Pete Stavropoulos:]

This is Pete Stavropoulos on for Joe. Couple of quick questions. With regard to the XLRS program, will you approach the FDA with 6-month data in hands, in order to start discussions? Or are you going to wait for 12-month data?

[Sue Washer:]

That will be a decision that we'll make with our partner, Biogen, as the data comes in.

[Pete Stavropoulos:]

Okay. And also, on last call, last quarter call, you mentioned 2 clinical sites were activated for the XLRP study. Have you made any progress in activating other sites?

[Sue Washer:]

So we do have the two sites active as we stated today. And we have several additional sites that should be coming online over the summer.

[Operator:]

Our next question comes from the line of David Nierengarten of Wedbush Securities. Please proceed with your question.

[David Nierengarten:]

Hi, thanks for taking my question. I had a couple. So first of all, when you just think about patient enrollment and -- well, first off, how are you doing on patient identification? And then secondly, it's been a little bit of slower pace than expected on ACHM. Is that speaking to -- I know we've talked a little bit about in the past difficulty in scheduling surgery with children and things like that. I mean, is there a little bit of a perception here that the -- there is -- the surgery isn't worth it. I hate to say that, but we're recruiting to clinical trial is not worth it? Maybe if you could add any commentary on enrolling patients in what's been a little bit of a stumbling plant with -- in the discussions with the patients and the doctors?

[Sue Washer:]

Thank you for the comments, David. And I understand that in the past, our enrollment has not been as fast as we would have wanted it to be. But as Matt pointed out, we've made many, many changes over the last 6 months, especially in the last 3 months, and patient identification now is going much better. And we have a seamless transition from our patient advocacy group into our clinical ops group. We're onboarding many more sites, not just in XLRP but also in achromatopsia, so that the throughput of screening can be increased. And I do think that originally the surgical variability we had caused a concern and a lot of discussion on these calls as well as with the principal investigators. But as Matt mentioned, we've done a great deal with the surgical training program and the following of these patients long term that we expect, and we're now confident enough to provide you guidance on enrolling those trials.

[David Nierengarten:]

So just then to reiterate, I guess, the point is that the patients do exist and have been identified. It's been a little bit of a struggle in the past to get them to go through with the surgery, but now you're confident that that's been addressed and have some major issue with the potential patients for the clinical trial?

[Sue Washer:]

The patients have been identified and are going through screening processes now.

[Operator:]

Our next question comes from the line of Matthew Luchini of BMO Capital Markets.

[Matthew Luchini:]

So maybe 2 for me. For XLRP -- or excuse me, for XLRS, now that we're fully enrolled and kind of the next major milestone on this program will be the actual top line data release, can you give us a sense as to what we should be expecting and what you will be able to share in terms of sort of the prioritization of endpoints? Or maybe said in another way and relatedly rather, what kind of contacts do you think you will be able to provide for the data that you'll be able to share? And then for XLRP, can you just give us a reminder as to how many patients you have identified, relative to your needs for the study? I understand that the sites are still coming on, but I'd love to hear more about patient identification.

[Sue Washer:]

So I'll take the second question first and then we'll move to the first question. For XLRP, we have a significant number of patients identified. And this has been an area where because of the nature of the disease, the patients are somewhat more motivated to reach out, and so the patient advocacy efforts have been very fruitful. So we have a significant number of patients queuing up for screening in that trial. When it comes to the XLRS data, I'll give a little bit of an overview for you, Matt, but then move you to our Matt, not to give you the context. And so as far as the data, we do expect to provide data across all of the meaningful endpoints. So we'll give safety readout as well as biological efficacy -- biological activity and efficacy endpoint. We do feel that in XLRS as we've guided before that visual field is as important as visual acuity in these patients as well as OCP and ERG as secondary endpoints. And the context of the data will be in light of the natural history study that -- Matt, I know you and I have talked about before and that we have 55 patients that we follow through our period of time. And we've looked at test/retest variability. We have been able to analyze all of that data in the natural history study and really understand kind of what the limits of variability are, and so that will be the context. In addition, we will have the baseline testing of these patients as well. And then Matt Feinsod, do you want to provide some more detailed nuances for Matt?

[Matt Feinsod:]

Sure. I mean, I think, you covered most of the highlights, Sue. As you mentioned, we'll be looking at all the standard measures of both visual function and visual structure. So that will include, as Sue mentioned, prematurely also visual equity, things like reading speed, ERG as well as structural measures, such as OCT and others as well. So I think that we're hoping to have the full data set analyzed after Sue mentioned the six-month time point and then to be able to provide further contacts at that point.

[Operator:]

[Operator Instructions] If there are no further questions, I would like to turn the conference back over to Ms. Sue Washer for closing remarks.

[Sue Washer:]

Thank you for your time on today's call and for your continued interest on our progress developing therapies for orphan conditions that improve the life of patients with inherited retinal diseases. We do intend to leverage the many accomplishments of our prior period, particularly as it relates to patient enrollment activities as we advance into the second half of 2018. As always, I would like to thank all of the patients and families who are participated in our trial.

[Operator:]

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful rest of your day.