Applied Genetic Technologies Corporation
Q4 2018 Earnings Call Transcript

Published: 10 Sep 2018

[Operator:]

Good afternoon, and welcome to the AGTC Fourth Quarter and Fiscal Year 2018 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 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 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 Susan Washer, Chief Executive Officer of AGTC. Please go ahead.

[Susan Washer:]

Good afternoon. And thank you all for joining us today. With me are Bill Sullivan, our Chief Financial Officer; and Mark Shearman, our Chief Scientific Officer. During today’s call, Mark will provide a brief overview of our clinical and preclinical programs, and Bill will review our financial results for the fourth quarter of fiscal year 2018. The team will then be available to answer any questions you may have. We’ve been extremely productive this year, achieving several key milestones and having our highest annual patient enrollment to-date across our four clinical programs. Most significantly, in April, we enrolled the first patient in the first group of our Phase 1/2 clinical trial evaluating our product candidate for the treatment of X-linked retinitis pigmentosa or XLRP; and in July, we enrolled the first patient in the second group. Under the terms of our collaboration with Biogen, we have earned total milestone payments of $12.5 million. The addition of Lanita Scott, M.D. and Karen Carroll, RN to the positions of Vice President of Clinical Research and Medical Affairs and Vice President of Clinical Development Operations earlier this year, as well as expansion of our clinical and patient advocacy teams have significantly improved our capacity to efficiently execute quality clinical trials and more effectively engage with physicians, site staff, patient and advocacy groups. Clinical and patient advocacy group expansion, together with additional clinical sites and surgical training has effectively mitigated our past enrollment challenges. To discuss the details on the progress in each of our programs, I will now turn the call over to Mark.

[Mark Shearman:]

Thank you. As Sue mentioned, we are now enrolling patients in our Phase 1/2 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 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. We have now dosed five patients including two in the second dose group at three active study sites, have screened or scheduled screenings for additional patients and adding additional sites across the United States. We expect to complete the dose escalation phase of the XLRP trial in the first quarter of 2019. Turning to our clinical programs to develop treatments for 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 1/2 clinical trials of AGTC’s product candidates for achromatopsia caused by mutations in the two most common achromatopsia genes, CNGB3 and CNGA3. In the achromatopsia CNGB3 trial, we have completed enrollment of 8 patients across three dose groups. In the achromatopsia CNGA3 trial, we have enrolled 2 patients in the low dose group. And our third international site in Israel has begun genotyping and screening their patient pool in order to begin enrollment. We expect to complete the dose escalation phase of the achromatopsia B3 trial in the first quarter of 2019 with achromatopsia A3 to follow thereafter. In addition to our ongoing clinical programs, we continue to evaluate our product candidates for XLRP and achromatopsia in preclinical settings. There are currently three AAV gene therapy vectors in the Phase 1/2 clinical development for XLRP and two for achromatopsia including our programs. To understand the differentiation of our product candidates versus that of others, we’ve recently performed a comparative analysis. This analysis revealed that our capsids have specifically higher expression levels relative to both of the other capsids via fundus fluorescence while having comparable safety results and expression by PCR and immunohistochemistry. To obtain these results we compared the photoreceptor transduction efficiency of subretinally delivered capsids in a head-to-head non-human primate experiment, using a reported gene under the control of photoreceptor specific promoter. Non-human primates received injections of the vector in both eyes of the same volume and same concentration and were followed for 13 weeks. Based on analysis of this data, we believe that our XLRP and achromatopsia products, we have a competitive advantage and represent an attractive therapeutic choice for gene therapy via subretinal injection. Turning now to our Phase 1/2 clinical trial for our product candidate in x-linked retinoschisis or XLRS in collaboration with Biogen, we’ve recently completed the targeted enrollment of 27 patients. XLRS is a disease that is characterized by abnormal splitting of the layers of the retina resulting in poor visual functioning 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 this 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 wide number of visual function, retinal structure and quality of life measuring assessments. The Company expects to provide interim top-line six-months data across both safety and biologic activity endpoints by the end of 2018 with the primary analysis of the full 12-month active trial data to follow six months later. We have also decided in collaboration with Biogen to expand the XLRS trial include to five pediatric patients at the high dose as data for the pediatric patients in the middle dose group supported that the product candidate was generally safe and well-tolerated in this patient population. In addition to the four ongoing clinical programs we continue to partner with Bionic Sight on the 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 to control their activity using light signals, potentially allowing patients without functional photoreceptors to regain 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 kinds of 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, may allow patients to have better visual function than other optogenetic approaches. Bionic Sight expects 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’ll briefly review our fourth quarter and fiscal year 2018 financial results.

[Bill Sullivan:]

Thank you, Mark. Our fourth quarter 2018 and full year 2018 financials were included in our press release, which is distributed a short while ago. In fiscal year 2018, we generated a net loss of $21.3 million, compared to net income of $400,000 in fiscal year 2017. This $21.7 million decrease was primarily due to a $15.3 million decrease in revenue, a $6 million increase in R&D expenses, a $3 million increase in G&A expenses, and $2.3 million reduction related to income taxes. The $15.3 million decrease in revenues is primarily due to a decrease of $19.7 million related to non-cash amortization revenue partially offset by a $2.5 million increase in milestone revenue and a $2 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 milestone revenue is associated with earning a $2.5 million milestone payment from Biogen associated with dosing of the first patient and the XLRP Phase 1/2 trial. The increase in development services revenue is primarily due to activities associated with our Phase 1/2 clinical trial for XLRP, which is reimbursed by Biogen. Moving on to R&D expenses. The $6 million increase in R&D expenses is primarily due to increased spending on our general, research and discovery programs, increased spending on the Company’s clinical programs, increased sublicense expense associated with the Company’s collaboration arrangement with Biogen on the XLRP program and increased employee-related expenses associated with the hiring of additional employees to support the clinical trial execution and research and development activities. The $3 million increase in G&A expenses is primarily due to increased employee-related and corporate expenses to support the Company’s continued expansion. The $2.3 million decrease in income tax expense is primarily from the recognition of revenue in fiscal year 2017 related to the Biogen agreement for tax purposes, which has accelerated compared to the Company’s GAAP revenue, resulting in significantly more taxable income and GAAP net income. Now turning to our balance sheet and financial guidance. We ended fiscal Q4 2018 with a strong balance sheet. Total cash, cash equivalents and investments, as of June 30, 2018, were $104.9 million. We believe these funds will be sufficient to allow AGTC to generate data from ongoing clinical programs, to move our preclinical program in optogenetics 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. Notably, these projected cash balances include $10 million milestone payment, less sublicensing fees of 23%, associated with dosing the fourth patient in the XLRP trial in July of 2018. That concludes the team’s remarks today. Operator, you may now open the line for question-and-answer period.

[Operator:]

Great. Thank you. [Operator Instructions] Our first question is from Matthew Luchini from BMO Capital Markets. Please go ahead.

[Matthew Luchini:]

Hi. Good afternoon, and thanks for the questions. So, a couple for me on XLRS. First thing, just apologies, if I missed this. But, can you remind us the final distribution among the 27 patients between adults and pediatrics? And then for the new five pediatric patients that are going to be coming in at the higher dose, I guess, what’s the data communication plan, or said another way, do you expect to report, say, six-month results from that group independently of a larger update on the trial? And then, lastly, maybe you could put a little color around the puts and takes in terms of what may or may not give you confidence or support a decision to take the six-month data to the FDA versus waiting for 12 months if that decision has not yet been finalized? Thanks.

[Susan Washer:]

Hi, Matt. This is Sue. Thank you for calling in and listening to the call and for your questions. So, on the adults and peds, in the current group of 27 patients, 5 of the 27 were peds and the rest were adults. So, that -- and those 5 pediatric patients were at the middle dose group. And that’s the dose of pediatric patients that we reviewed safety data on with our collaborator Biogen to decide to move the ped patients into a high dose group of 5. At this point in time, we would not wait for the six months readout on the high dose pediatric patients to go ahead with our guidance on providing data on the initial group of 27 patients by the end of this year. So, that’s the timing on that. As far as the color around that six-month data and discussions with the agency. That really is a decision that needs to be made with our collaborator after we’ve seen the data and have a time to analyze it and digest it with Biogen and make a collaborative decision about how we would move that forward with the agency.

[Matthew Luchini:]

Okay, thanks. I guess, just to clarify or restate my second question. The question wasn’t will you wait for the 5 high dose pediatric patients to report the 27 patients? It was, do you expect the communication of that sort of subgroup of patients to occur independently of say a larger update like say the 12-month data from the larger study?

[Susan Washer:]

Biogen and AGTC have not yet made a determination on guidance on the timing of that 5 additional pediatric patient data release.

[Matthew Luchini:]

Okay.

[Operator:]

Our next question is from Jim Birchenough from Wells Fargo Securities. Please go ahead.

[Yanan Zhu:]

Hi. Thanks for taking the questions. This is Yanan dialing in for Jim. So, a few questions, first on the XLRS program. Just wondering if the decision to expand the mid-dose pediatric to --following the safety data from the mid-dose pediatric patients with the decision to expand into high-dose, just wondering whether that decision is driven in any way by potential efficacy signals, meaning high-dose in adults?

[Susan Washer:]

So, all of the decisions we’ve made throughout all of our trials on dose escalation, have always been made purely on the basis of safety signals.

[Yanan Zhu:]

Got it. Thanks, Sue. And for the upcoming data report for the six months data for XLRS, have you determined whether, I’m guessing the venue for the data review? So, would it be more of a medical meeting setting or would it mainly be a Company release, data release?

[Susan Washer:]

So, we haven’t made the final determination on that. It will depend on when the data actually is released from analysis. But, at the very least, we would issue a press release and schedule a conference call so that the data could be thoroughly analyzed.

[Yanan Zhu:]

Got it. And then, question on the achromatopsia program. For the B3 program, today, you announced that you’ve dosed one additional patient, now eight patients in total. The last patient seems to be in a new dose group. So, just wanted to get some clarification. I think the very first dose group was a low dose and then you had -- that was four patients, and then you had a new lower dose and that had three patients. So just wondering this last patient, number eight, what dose -- relative to the first two doses, what’s dose for patient number eight?

[Susan Washer:]

That’s a good question, Yanan, and I’m glad you allowed us to clarify that. And the initial dose group in achromatopsia B3, we dosed four patients at that low dose. Then we had a new low-dose where we dosed only two patients. And we’ve now dosed two patients at the middle dose. So, there was a body of data that the DSMC felt comfortable with, with only two patients in that new low dose. So, we now have moved on to the middle dose with two of the patients.

[Yanan Zhu:]

Great. Thanks for that clarification. And in terms of the surgeon treating the achromatopsia B3, A3 and also the XLRP study, are these -- all these additional patients still being treated by one single surgeon or do we have additional surgeons coming onboard?

[Susan Washer:]

So, all of these patients to-date have been dosed for the single surgeon. But we have now fully trained additional surgeons, who we will be rolling into the trial soon.

[Yanan Zhu:]

Great. And then, sorry, last question if I may. You mentioned the preclinical study in non-human primates comparing your construct vector and with the competitive vectors for the ACHM and XLRP product candidates. Just wondering the better data you just reported, was that driven by the vector or the promoter or any other components of the product candidate?

[Mark Shearman:]

Yes. This is Mark. Maybe I can take that question for you. So essentially, we kept the promoter and transgene constant. And so, this study was really comparing head-to-head, the 3 different capsids, AAV2tTF which is the engineered version of AAV2 wild-type that we used AAV8 and AAV5. And so, the outcome from that study is driven by the relative properties of those 3 capsids as we reported. And we recently disclosed this at the Retinal Degeneration 2018 meeting in Ireland that AAV2tYF based on the fundus fluorescence showed enhanced [indiscernible] for photoreceptors.

[Operator:]

Our next question comes from David Nierengarten from Wedbush Securities. Please go ahead.

[David Nierengarten:]

Hi. Thanks for taking the questions, most of mine have been asked. But I did want to check-in on the pediatric component of the XLRS study, if there were any additional data points beyond the efficacy data endpoints that you’ve spoken about before that you might look for in pediatrics. Is there any particular endpoint that you think might be more important in that population versus the adults? Thanks.

[Susan Washer:]

Thank you, David. There aren’t any different endpoints in those -- that patient population. We’re looking at all of the same endpoints, those standard functionalist endpoints, structural endpoints and electrical endpoints. Just to use your question to answer what some other people might be thinking about, and the reason that we started with a lower dose with those pediatric patients initially was just in the abundance of caution in these young patients, and the knowledge that in some cases people have seen a different kind of immune response in pediatric patients and adults. So, just in the abundance of caution, we started those peds at the middle dose before moving them up to the high dose.

[Operator:]

[Operator Instructions] As there are no further questions, I’d like to turn the floor back over to Ms. Washer for any closing comments.

[Susan Washer:]

Thank you. This was a very important year for AGTC. We educated on a number of significant initiatives across our broad and diverse portfolio of orphan ophthalmology development programs. And these initiatives will allow us to effectively move these product candidates forward through development and regulatory review to hopefully alleviate the high unmet need of patients with blinding diseases. We achieved critical milestones in our ongoing collaboration with Biogen, allowing us to unlock valuable capital that has further strengthened our balance sheet and placed us in a strong financial position. We look forward to further positive developments in the coming months as we continue to advance our clinical product candidates and many research programs. As always, I would like to thank all of the patients and their families who have participated in our trials. Thank you.

[Operator:]

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