Applied Genetic Technologies Corporation
Q3 2016 Earnings Call Transcript

Published: 10 May 2016

[Operator:]

Good afternoon and welcome to the AGTC’s Third Quarter 2016 Financial Results Conference Call. Today's conference is being recorded. For introductions and opening remarks, I would like to turn the call over to Mr. Larry Bullock, Chief Financial Officer of AGTC. Please go ahead sir.

[Lawrence E. Bullock:]

Thanks Melissa. Good afternoon and thank you for joining us today. Before we get started, I would like to remind everyone that during this conference call, we may make forward-looking statements, including statements about our financial results, our future business strategies and operations and our 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 our Risk Factors section of our Annual Report on Form 10-K for the fiscal year ended June 30, 2015. I will now turn the call over to Sue Washer, President and Chief Executive Officer.

[Susan B. Washer:]

Thank you, Larry and welcome to all those who have joined us on the call today. I will be providing a Company update, including recent developments and the progress of our current and pending clinical trials. I will then turn the call back to Larry to review our third quarter 2016 financial results and following Larry’s remarks, we will take your questions. Over the past several months, we continue to make progress meeting several key clinical and corporate milestones. We’re very pleased that today we announced our long planned expansion beyond orphan ophthalmology indications to address targets that could help treat patients with rare inherited hearing disorders. The field of hearing loss of otology is an area where there has been relatively little advancement in medical care beyond hearing amplification devices such as hearing aids and cochlear implants. AGTC believes that the otology space has many of the same characteristics that make ophthalmology attractive including that the ear is a continued space there are multiple genetic targets and that there is a clear ability to leverage clinical knowledge and advances in AAV technology across multiple products. We believe that our deep expertise in developing AAV gene therapy products that we are well positioned to bring new treatments to patients where addressing the underlying genetic cause maybe the best approach to restoring hearing. There are significant overlaps in the scientific and clinical approaches to addressing therapeutic targets in otology with our current strategy for treating orphan ophthalmology indications infusing AAV technology, increasing the confidence and our ability to successfully develop rationally designed durable and targeted gene therapy products for affected individuals. We have embarked upon several new research programs aimed at correcting genetic feedbacks in cells in the ear that lead to deafness as well as initiating exploratory screening efforts to identify improved captive and promoter customized for these cell types. This work will be conducted in collaboration with academic investigators and aided by existing strategic partnership. The Company has also assembled a Scientific Advisory Board of six prominent research and clinical investigators to consult with and help guide our efforts. While it will not significantly affect our near term cash flow, we do expect to advance several products into active development within the next few years. We are continuing to advance the development of our lead product candidates for X-linked retinoschisis or XLRS, achromatopsia or ACHM and X-linked retinitis pigmentosa or XLRP. These orphan ophthalmology indications are caused by mutations in single genes that significantly affect visual function and currently lack effective medical treatment. Our XLRS program, which is one of our partnered programs with Biogen is currently in an ongoing Phase I/II trial where the plans dose escalation is continuing to multiple cohorts. The clinical protocol includes enrollment of 27 XLRS patients, and AGTC currently has seven clinical sites participating in the study. It remains our intention to release data from XLRS clinical trial once we have a substantial body of data that will allow for a rigorous technical analysis and accurate interpretation as a result. As part of our collaboration, Biogen has obtained worldwide commercialization rights for the XLRS program while AGTC maintains responsibility for the clinical eve of the program through product approval in the United States. Biogen will support the clinical development cost subject income certain conditions following the first in human study. We have an option to share development cost and profits following the analysis of the complete Phase I/II clinical trial data and an option to co-promote the second of either XLRS or the XLRP product to be approved in the U.S. AGTC is also developing products for achromatopsia resulting from mutations in both the CNGB3 gene and the CNGA3 gene, which together account for approximately 75% of the total achromatopsia patient population. We have received orphan drug designation from the U.S. Food and Drug Administration and the European Medicines Agency for our investigational gene therapy products for both the treatment of achromatopsia caused by CNGB3 and CNGA3. We recently announced a publication of two studies that provide support for our planned clinical investigation of our gene therapy candidate for treating ne achromatopsia caused by mutation in the CNGB3 genes. Results were published in the peer review journal Human Gene Therapy Clinical Development. The first study in CNGB3-deficient or knocked out mice demonstrated that injection of the vector was well tolerated and not associated with any clinically important toxicology findings. Bio-distribution analysis showed that detection of vector DNA was limited primarily to high levels in vector injected eyes was little or no vector DNA in other tissues, showing that the treatment was specific to its intended target and did not affect surrounding tissues. This study also evaluated the efficacy of the treatment, showing increased co-mediated ERG responses on measure of electrical signaling in the retinal cells. This effect was seen in 90% of vector treated eyes in the higher dose group. The second study demonstrated that injection of the vector in normal cynomolgus macaques resulted in dose related ocular inflammation that spontaneously improved over time. Bio-distribution studies demonstrates high levels of vector DNA in the injected eye but minimal or no vector DNA in any other tissue. This study in normal animals was not designed to evaluate efficacy. Together, these studies reinforce the prior evidence in animal models that suggest that our achromatopsia gene therapy candidate delivered as a one-time injection has the potential to provide long lasting vision improvement in humans. Both the CNGB3 and the CNGA3 programs are being developed wholly by AGTC. We are enrolling patients in the CNGB3 trial and it remains our intention to release data once we have a substantial body of data that will allow for rigorous technical analysis and accurate interpretation of the results. We expect to file an IND for the CNGA3 program in the summer of 2016. In other programs, we are conducting IND enabling studies for our XLRP candidate our second partnered program with Biogen and it is our intention to file an IND in the first half of 2017. Last week, at the Association for Research in Vision and Ophthalmology or ARVO annual meeting, researchers from the University of Pennsylvania announced new animal safe study data evaluating two versions of the gene construct for XLRP. The abstract described a study conducted at the University of Pennsylvania and the University of Florida comparing the short-term efficacy of two different AAV construct carrying either optimized version of the gene or a previously evaluated shortened version of the gene in the functional rescue of photoreceptors in a K9 model of XLRP. Study researchers concluded that rescue of both rods and cone was achieved following treatment with both vectors with no significant efficacy differences observed. As also disclosed at the recent ARVO Meeting, the Company has completed non-human primate screening to select the captive and promoter to incorporate into the final product construct and thus allow for a robust targeting of both road and cone cells affected in this indication. As discussed during our previous financial results call, we are also developing treatments for three additional partnered indications with Biogen. Finally, AGTC continues to progress on its internal work developing new treatments for age related macular degeneration or AMD in our Alpha-1 Antitrypsin Deficiency program. As we expand our pipeline, both internally and with our partner Biogen, we continue to employ a careful rational approach to the selection of our product candidate. And doing so we continue to execute on our ultimate goals of becoming a leading gene therapy company developing life changing products for patients with rare diseases. In February, we were pleased to announce the opening of our new 20,000 square foot expanded corporate office and state-of-the-art laboratory space outside Gainesville, Florida and emerging [science technology quarter] (Ph). This new facility will help us to accelerate our research and development efforts, house our corporate staff in one building and continue to attract top talent. This facility also offers space for future expansion. Finally, I would like to make sure everyone knows we are holding our second research day on June 21 in New York City at the Le Parker Meridien. Details will be posted on our website. We will be providing an update on our programs as well as discussing ophthalmology clinical trial endpoints. There will be detailed presentations on how these endpoints are measured and evaluated including examples of endpoint readouts in individuals with normal visual function compared to readouts in patients who have XLRS achromatopsia or XLRP. We hope you will all be able to join us. Now, I’ll turn the call back to Larry who will briefly review our third quarter financial results.

[Lawrence E. Bullock:]

Thank you, Sue. Total revenue for the three months ended March 31, 2016 was $12 million compared to $284,000 during the same period in 2015. Revenue recorded during the three months ended March 31, 2016 resulted primarily from the amortization of upfront fees received under AGTC’s collaboration with Biogen. Grant revenue in the three months ended March 31, 2016 decreased year-over-year due primarily to reduced research and development activities on grant funded projects. Research and development expense for the three months ended March 31, 2016 increased by $3.8 million to $7.9 million compared to the same period in 2015. The year-over-year increase was primarily a result of higher licensing related fees associated with collaborative arrangements entered into external partners combined with higher outside program costs, laboratory supply costs and other research related expense from incremental activities associated with the further development of the Company’s product candidates. Employee related and share based compensation costs also increased year-over-year due primarily to the hiring of additional employees to support this increased level of research and development activity. General and administrative expense for the three months ended March 31, 2016 decreased by $209,000 to $2.4 million compared to the same period in 2015. The decrease was primarily driven by lower legal and professional fees and lower share based compensation expense and other administrative costs. Partially offset by higher employee related costs resulting from the hiring of additional employees to support the Company’s continued expansion. For the three months ended March 31, 2016, the Company recorded net income of $2 million compared to a net loss of $6.3 million in the same period of 2015. At March 31, 2016, the Company’s cash, cash equivalents and investments amounted to $180.5 million, which includes payments previously received under the Company’s collaboration with Pfizer. As we have previously stated, we believe that our existing cash, cash equivalents and investments at March 31, 2016 will be sufficient to enable us to advance plan preclinical studies and clinical trials for our lead product candidates in XLRS, achromatopsia B3, achromatopsia A3 and XLRP for at least the next two years. The Company expects that as of June 30, 2016, its cash, cash equivalents and investments will be between $163 million and $173 million. With that I’ll close my remarks. We thank you for your interest in and support of the work we’re doing here at AGTC. And once again, I would like to remind you that we will be holding a research day in New York this summer on Tuesday, June 21. Members of the financial community interested in attending and RSVP by calling was our partners at 212-599-1265. Operator, you may open the line for questions.

[Operator:]

Thank you [Operator Instructions]. Our first question will come from Matthew Luchini with BMO.

[Matthew Luchini:]

Hi good afternoon and thanks for taking the question. So I wanted to ask first as it relates to the five-year data that was presented at the American Society of Gene and Cell Therapy meeting a few weeks back. If you could help just walk through some of the read-throughs from that programs to what you are working on with XLRS and achromatopsia, and maybe you could talk a little bit about the next steps for that program just in general? And then secondly, as it relates to the announcement today on the focus on hearing, I just wanted to get a sense as to how you will be thinking about potential indications and when we could begin to see maybe some pre-clinical data or initial clinical trials may get started? Thank you.

[Susan B. Washer:]

Thank you for the questions. With regard to the data discussed at AGTC about the Alpha-1 program, we think the most important read through from that study is that the expression of the protein remain consistent over a five-year time period. So this is definitely a good indication of durable expression using AAV gene therapy. As to your second question about our otology, we feel that we will at the otology space very similar to the ophthalmology space. When we look at inductions within ophthalmology we look patient population size, we look at the availability of animal models, we look at an understanding of the clinical phenotype and the natural history of the disease, we look at the characteristics of the gene and all of those things that we've been very careful applying with ophthalmology we feel will also apply in otology. Your next question was about when we might be seeing data we're announcing specific targets and we have taken a stance for competitive reasons that we don't announce specific targets until we have a body of data that is leading us directly towards an IND and that we feel will be at some point in the future.

[Operator:]

Our next question will come from Jim Birchenough with Wells Fargo Securities.

[John Yanen:]

Hi, this is actually Yanen in for Jim. So first question on the XLRS and achromatopsia potential data, upcoming data, is there a plan to report those data together or one before the other?

[Susan B. Washer:]

We have no specific guidance or plan to report them together or separately. Our guidance on data release has remained unchanged for either program and they are not dependent upon each other.

[John Yanen:]

Got it. The other question is on the CNGA IND filing. So I think the construct is identical other than the gene itself compared with the CNGB3 construct. Is that a correct understanding?

[Susan B. Washer:]

Yes it will be a correct understanding.

[John Yanen:]

Got it, would that accelerates the preparation of the development before the IND and after IND, would you comment on that?

[Susan B. Washer:]

Well we definitely feel that it did accelerate our developments of the A3 program, so quickly after the B3 program, we just filed the B3 IND in October and we feel we will be able to able to file the A3 IND this summer. So yes, we do feel that the similarity between the programs allows for more efficient development.

[John Yanen:]

Got it and lastly on this very interesting expansion into otology space, would you care to comment on several aspects of this new area such as the delivery method, established delivery analogous to the intravitreal subretinal delivery for the ophthalmology. And also if you wouldn't mind talking about the role of cochlear implants and what might be the unmet need not satisfied with that kind of technology? And perhaps lastly, in terms of the size of the market in those kind of inner ear healing loss indications are we looking orphan indications or much larger indications in general?

[Susan B. Washer:]

So I'll kind of take a little bit of reverse order, there are number of different genetic defects that result in hearing loss. Not unlike in ophthalmology and the size of market that we would be looking at is one of the things that we use to choose, which genetic defect we're looking at within ophthalmology and we apply that in otology. But it is fair to say that there are a number of indications that are in orphan space and we intend to work on orphan otology indications that has similar patient population sizes as to the ophthalmology program that we're working on. As to the cochlear implants I think that cochlear implants have always been considered to be a less than ideal solution to the issue of hearing loss especially in genetics indications and so we feel we would have a competitive advantage to a medical device in the ease of the delivery, because we do believe there are much less invasive ways to delivery gene therapies vectors into ear than to do a full cochlear implants. And we will be looking at ear in the same way that we have always looked in ophthalmology we will be looking in non-human primates at various delivery methods to see how that affects the tropism and the serotype transaction of different cells in ear. Just like we do in ophthalmology where we look in non-human primates the different serotypes and promoters and different cells in the eye. So we feel there is a lot of similarities between the two areas that we've selected to focus on.

[John Yanen:]

Got it. And lastly, perhaps on approvable endpoint in the hearing loss space, do you feel the same kind of comparability with the ophthalmology space?

[Susan B. Washer:]

We feel that there are some widely recognized clinical endpoints as to thresholds, pitch and volume that are used routinely in E&C settings that we will be able to apply the clinical development.

[John Yanen:]

Got it. Thank you that’s very helpful.

[Operator:]

Our next question will come from Debjit Chattopadhyay with Janney.

[Debjit Chattopadhyay:]

Hey good afternoon and thank you for taking my questions. Just one quick one and with the ongoing clinical programs, do we have a sense of how many targets are actually getting modified and/or how many would be get acquired to have a sustainable clinical benefit say going out five-years?

[Susan B. Washer:]

So you are speaking to XLRS achromatopsia and XLRP?

[Debjit Chattopadhyay:]

Yes.

[Susan B. Washer:]

Yes. So the answer to that question is different for each of those indications. So based on analysis of animal models in each of the indications we do have an idea of the number of cells and the robustness of expression, a number of cells that are being transduced. It is not however, definitely known in any of the indications exactly how many cells do you need to transfuse in order to provide efficacy. Except for the fact that we know from our preclinical studies that when we do a dose escalation we can find a dose in each of the indications that provide for a significant improvement in clinical endpoint. So we’re looking at going directly from a dose of vector to a significant clinical endpoint with a lack of ability in the back of the eye until you get exact ideas of protein concentrations. In achromatopsia we have a little bit more direct bookends to what we think we need to do because there is, one, a disease in humans called blue cone monochromacy, which we are also actually working on internally. And in blue cone monochromacy only 10% of your cones are working and you still have extremely poor vision. And then there is another human condition called X-linked color blindness where one type, either your green cones or your red cones don’t work which means you only have 55% of your cones working. And people with X-linked color blindness have normal visual acuity ranges. So that’s gives us a little bit more of a booked end within achromatopsia as to what we’re trying to achieve and I think what encourages us about that indication is that 100% is obviously not necessary.

[Debjit Chattopadhyay:]

Yes. That’s very helpful, because I mean I’m just trying to kind of correlate in terms of success rate, whether it's going to be 80% of the patients responding or 90% of the patient responding, obviously perfection should not be expected. But those patients who are not responding to the treatment, is it because sufficient number of cells are not getting transduced or is there something else which is driving that inability to reach the endpoint?

[Susan B. Washer:]

I don’t think we will have the answer to that question until we’ve collected all of the data in a significant fashion and analyzed it across multiple patients and multiple time points.

[Debjit Chattopadhyay:]

Great and my last question and this is a stupid question. Could you remind us, is it a single injection or especially the retinal injections, is it a single retinal injection or are you trying to do it multiple time, multiple points given this agility of the retina in general? Thank you.

[Susan B. Washer:]

It's single injections, in all cases our clinical trial programs are focused on single injection of AAV gene therapy vectors either intravitreally or subretinally.

[Debjit Chattopadhyay:]

Thanks Sue.

[Susan B. Washer:]

You are welcome.

[Operator:]

We’ll now take a question from David Nierengarten with Wedbush Securities.

[David Nierengarten:]

Hey tanks for taking the question. I have a couple of quick one or maybe not so quick. But if you could remind us, is there any fundamental difference in the physiology of the disease for achromatopsia between CNGA and CNGB subtypes?

[Susan B. Washer:]

No, they are exactly the same from a clinical phenotype and in fact no observation in the clinical would be able to differentiate between the two.

[David Nierengarten:]

Okay and then on the inherited deafness, I mean my understanding has been maybe a little bit similar to ophthalmology, there are two kinds of inherited hearing loss roughly two kinds. One that’s mechanical and one that's related the cell [Indiscernible] in the ear, I mean that would presume you to be going after defects in the channels in ear cells. And then you would also be looking at hearing loss that was not completely degenerative similar to the ophthalmology or is there any other criteria that is important to think about when you look in the otology space?

[Susan B. Washer:]

I think you are thinking about it very clearly David and we're concentrating on those indications that are similar to the kinds of the indications we're working on in ophthalmology whether if it's cellular mechanism that have gone right and where we can restore that cellular mechanism by providing expression of the normal protein.

[David Nierengarten:]

Got it. okay thank you.

[Operator:]

Our next question will come from Steven Willey with Stifel.

[Steven Willey:]

Yes good afternoon, thanks for taking the questions and sorry if there is a little bit of redundancy of have done a couple of minutes late. But just with respect to I guess the [capsis] (Ph) optimization what you guys have done thus far in ophthalmology. Just wondering I guess how leverageable are those findings into otology now, are we just talking about completely different tropisms for various AAV subtypes and I guess to that extent how has the collaboration you have with 4D molecular kind of helped progress these at least idea into preclinical development?

[Susan B. Washer:]

So we've settle ongoing collaborations that allows us to screen through a wide variety of different capsis as well as our Cipronex that allows us just screen through promoters and I think as we've mentioned before, we think promoters can be equally as important as cathode and driving robust and self specific expression. So we've learned an awful lot about how to screen and what specifies to screen with and what techniques to use enrich library as we go through rounds of passaging in animal models and we'll be able to apply all of that to otology. We will be doing a hard work of screening in non-human primates, it may be that there are some capsis and promoters that are similar between the two spaces, but we're not taking that for granted, we're going to do the research and have already started much of the research to optimize the product for the specific cells that we're going after in the year. And I think that that's something that we've been very consistent about that we feel that the individual tools that becomes the product, the capsis the promoter the gene construct, formulations delivery, each of those needs to be optimized for each indication and each indication needs to be treated as a unique and specific product opportunity. But the methods that we use to pick those to tools and put them together into a optimal product concepts are extremely similar between the two indications.

[Steven Willey:]

Okay a little bit you have kind of previously characterized pre-clinical work in the ophthalmology space is being a little bit challenging the sense in that you do need to go the non-human primate models to get the best recapitulation of human biology as it pertains to be vision, is that also the case for hearing as well?

[Susan B. Washer:]

I don't think there is published data to answer that question one way or another. I do think that there is beginning to be some published data out there that says likely have shown an ophthalmology the same times of species differentiation exists in CNS and that there is published data that capsis they are promoters that might look very good in lower mammals in the CNS systems are not kicked when they do that same experiment in non-human primates it's not necessarily the same capsis and promoted that they would fix. So I think that there is a strong possibility that this non-human primates screening is necessary, but that's part of the work that we will do generate the data.

[Steven Willey:]

Okay and then I know that you have a few non-ophthalmology programs available to Biogen under the collaboration, would any of these archeology programs to follow under the realm of those terms?

[Susan B. Washer:]

Now the terms of Biogen agreements call for two ophthalmology programs and one non-ophthalmology and they have already selected and we've disclosed that the non-ophthalmology programs is a CNS program on ALD. So these programs do not fall under the Biogen partnership.

[Steven Willey:]

Understood. Thank you for the responses.

[Susan B. Washer:]

You are welcome.

[Operator:]

[Operator Instructions] Our next question will come from Mara Goldstein with Cantor Fitzgerald.

[Mara Goldstein:]

Just on the otology on the idea of natural history studies, can you speak to I suppose the initiation and the completion of such natural history studies and how long you think that those will take - you come to them in form whatever you’re clinical work will be?

[Susan B. Washer:]

So I don’t think I can speak to the specifics of that. I think that we’re at the stage when we’ve compiled epidemiology information and published information about the natural history of the different indications and we’re working with our scientific advisory board in this space. We’ve got a six members scientific advisory board that has been put together to define what the natural history study will look like.

[Mara Goldstein:]

Alright. Thank you.

[Operator:]

And next we’ll take a question from Joe Pantginis from ROTH Capital Partners.

[Joe Pantginis:]

He guys good afternoon. A couple of questions if I can around XLRS, since that’s your lead program. With regard to the current study, obviously Sue your goals have been laid out quite plainly with regard to having a substantial body of data. Can you talk to at all, with regard to how enrolment has been going? I know you are not going to disclose numbers, but has it been going according to plan and what follow-up times that patients has been seeing?

[Susan B. Washer:]

We haven’t provided any guidance or information on the details of patient-by-patient information.

[Joe Pantginis:]

I understand okay. And then if I could just look maybe towards the future. If the data come out positive, maybe we could take some broad strokes here with regard to what a pivotal program might look like?

[Susan B. Washer:]

Yes, so we have provided some feedback and guidance on what we are envisioning with the caveat that obviously pivotal trial is designed through end of Phase II meeting with the FDA. But in our minds a pivotal trial would be randomized patients into treatment groups and non-treatment groups and we would use the non-treatment group as the control for a period of time, which we envision could be a short of six-months, so it could be a year. And then you would then cross over the untreated patients into the treated group and follow them to increase your end and the statistical significance of the study. We also have provided guidance that we feel and the FDA has actually given us guidance that the patients once treated will be treated in both eyes.

[Joe Pantginis:]

Thanks for the reminder.

[Operator:]

And that does conclude our question-and-answer session at this time. I would like to turn the conference back to Sue Washer for closing remarks.

[Susan B. Washer:]

Thank you. So I thank you all again for participating in today’s call. I did want to point out that on May 17 and 18, we will be at the Piper Jaffray Genomics Rx conference in New York City. And on May 31 and June 1, we will be at the Boston CEO Conference taking place in Boston. We look forward to seeing you at one of these events or at our Research Day on June 21. Thank you again for your interest in AGTC and your attention this evening.

[Operator:]

That does conclude our conference for today. Thank you for your participation.