Applied Genetic Technologies Corporation
Q2 2017 Earnings Call Transcript

Published: 9 Feb 2017

[Operator:]

Good afternoon and welcome to AGTC Second Quarter 2017 Financial Results Conference Call. Today's call is being recorded. For introductions and opening remarks I'd like to turn the call over to Larry Bullock, Chief Financial Officer at AGTC. Please go ahead sir.

[Larry Bullock:]

Good afternoon and thank you for joining us today. Before we get started, I'd 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 the Risk Factors section of our annual report on Form 10-K for the fiscal year ended June 30, 2016. I would now like to turn the call over to Sue Washer, AGTC's President and Chief Executive Officer.

[Sue Washer:]

Thank you, Larry, and welcome to all who have joined us on the call. Today we will provide a company update, including recent developments and the progress of our current and pending clinical trials. Mike Goldstein, our Chief Medical Officer will provide the clinical update and will then turn the call back to Larry to review our second quarter 2017 financial results. Following Larry’s remarks, we will then take your questions. I will start by updating you on our non-clinical programs and research efforts. X-linked retinitis pigmentosa, or XLRP is a disease that mainly affects young boys resulting in initial night blindness and construction of visual fields over time leading to legal blindness in adult men. In our XLRP program which is part of our collaboration with Biogen we're on track to file the IND this year. We are pleased to report that on January 24, 2017 we entered into a collaboration agreement with Bionic Sight to develop an optogenetic product candidate for patients with advanced retinal disease. Due to the AGTC Bionic Sight collaboration the companies will seek to develop a new optogenetic therapy that leverages the companies deep experience in gene therapy and ophthalmology and Bionic Sight's innovated neuro-prosthetic device and algorithm for retinal coding. In patients with normal vision, light enters the retina and is detected by photoreceptor cells. These cells then convert the light into electrical signals and pass them through the retina to the brain. The signals are transmitted in a neural code that the brain uses to create images. In patients without functional photoreceptors, the electrical signaling is seriously impaired causing poor visual function. The collaboration plans to improve visual functions in patients without functional photoreceptors in two steps. First, we will transduce healthy retinal ganglion cells with an AAV vector that will allow expression of a light sensitive protein such as the retinal ganglion cells will be capable of producing an electrical signal in response to light entering the eye, effectively replacing the role of the damaged photoreceptors. The protein being expressed is a unique proprietary protein that has been engineered to be more sensitive to light than other currently available proteins. Second, Bionic Sight's advanced neuro-prosthetic device will be used to convert incoming images into specific pulses of light through a mathematical algorithm that mimics the retina's natural neural code. Thereby directing the retinal ganglion cells to create electrical signals similar to what would have been generated by healthy photoreceptors and will be understood more completely by the brain, using these two steps the companies to seek to restore normal neural signaling in patients with core visual function or blindness due to retinal disease. We believe the combination of our expertise in gene therapy and ophthalmology with Bionic Sight's transformative device and proprietary gene cassette will improve the live's of patient with retinal disorders. Greatly exceeding what is currently possible with prosthetic or gene therapy approaches in late stage degenerative retinal diseases. We expect to file an IND for this product candidate in 2018. As part of our collaboration with Biogen we're also developing new treatments for three additional indications, two of which are for ophthalmic diseases and one for a non-ophthalmic condition. Biogen has designated adrenoleukodystrophy or ALD as the non-ophthalmic discovery program under this collaboration agreement. ALD is an X-linked genetic disorder that causes damage to both the central nervous system and adrenal gland. We have other product candidates in preclinical developments that are solely owned by AGTC in both ophthalmology and otology. We are also conducting preclinical research to develop new product candidates for the treatment of age-related macular degeneration, or AMD, by leveraging our experience developing products in orphan ophthalmology and our work with a previous partner on a first-generation product for wet AMD. An important initiative for 2017 is the ongoing work in capsids promoter selection asset development and process development, to keep AGTC at the forefront of AAV technology. Examples of these efforts include our collaboration with 4D Molecular Therapeutics, the University of Florida and [indiscernible] as well as our ongoing internal research effort. As previously announced Jeff Chulay, our previous Chief Medical Officer has transition to a new position as Executive Director of Clinical Strategy. With 10 years of experience at AGTC, Jeff has been a valued member of our management team, and we look forward to his continued contributions in this new role. Advancing our promising pipeline of product candidates remains our highest priority to further enhance our ability to achieve our clinical goals, Mike Goldstein team has joined AGTC as Chief Medical Officer. Mike has extensive expertise in ophthalmology and was previous previously Chief Medical Officer at Eleven Biotherapeutics. A publicly traded company at which he helped to advance a novel treatment for dry eye disease from early research to a completed pivotal trial. We’re pleased to welcome him to the AGTC team. I will now turn the call over to Mike, to review our clinical program.

[Mike Goldstein:]

Thank you, Sue. I'll provide an update on enrollment in our lead clinical development programs, gene therapy candidates for treating achromatopsia and X-linked retinoschisis. Achromatopsia the target for two of AGTC's product candidates is caused by mutations in either of the CNGB3 or CNGA3 genes which together account for approximately 75% of the total achromatopsia patient population. Individuals with achromatopsia have remarkably reduced visual acuity, extreme light sensitivity and complete loss of color discrimination. AGTC is developing product candidates to treat patients with either the CNGB3 or CNGA3 gene mutations. The Phase 1/2 clinical trial, for achromatopsia CNGB3 product candidate is enrolling patients at four clinical sites. We have enrolled three patients in the low-dose group which completes that group. The Data and Safety Monitoring Committee or DSMC has requested follow-up testing on patients in this group which the company expects to complete this quarter. There were no serious adverse events, however there were observations that vary between the patients that are too early to comment on at this point and that warrant to follow-up testing. We are very early in this process and when we have additional data from the follow up testing and have reviewed it with the DSMC, we will determine what if any impact this may have on the timing of the trial. We have identified patients to enroll in the next group upon completion of our review with the DSMC. We plan to enroll a total of 24 patients in this study, we continue our outreach and plan to screen patients in an ongoing way both to support this trial and later stage trails. We also continue to evaluate additional clinical sites. In addition, we are now conducting site initiation activities at domestic and international sites and we anticipate enrolling 24 achromatopsia CNGA3 patients in a Phase 1/2 clinical trial. The study design will be similar to the design of the achromatopsia CNGB3 study. We continue our outreach and plan to screen patients on an ongoing basis to support this trial and later stage trial. We also continue to evaluate additional clinical sites. Finally, X-linked retinoschisis or XLRS the target for AGTCs most advanced product candidate 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. This program is part of our collaboration with Biogen and our product candidate is an ongoing Phase 1/2 clinical trial, in which we anticipate enrolling up to 27 patients. To-date, we have enrolled a total of 11 patients, six in the low-dose group, and three in the middle dose group and dosing in both these of groups is now complete. As specified in the clinical trial protocol, the DSMC reviewed the safety data from the first nine patients and we proceeded to those patients in the high dose group. We have enrolled two patients in this group and are scheduling the final patient in this group. We are on track to release data on the dose escalation phase of this trial and mid-2017 as previously guided. We now have seven clinical sites participating in this study, all of which are centers specializing in inherited retinal diseases. We continue our outreach and plan to screen patients on an ongoing basis, to support both of this trial and later-stage trials. We also continue to evaluate additional clinical sites. The primary endpoint of this clinical trial is safety. And available data thus far has shown that our XLRS product candidate has been generally well tolerated. As previously disclosed we observed mild to moderate ocular inflammation in the majority of treated patients, which resolved either without treatment or after treatment with topical or oral corticosteroids. The frequency and intensity of information to date has been similar at all three dose levels tested. I will now turn the call back to Larry, who will briefly review our second quarter 2017 financial results.

[Larry Bullock:]

Thank you, Mike. Total revenue for the three months ended December 31, 2016 was $10.9 million compared to $12.2 million during the same period in 2015. Collaboration revenue recorded during the three months ended December 31, 2016 and 2015 resulted primarily from the amortization of upfront fees received under our collaboration agreement with Biogen which began in August 2015. Grant revenue decreased by $300,000 during the three months ended December 31, 2016 compared to the same period in 2015 largely attributable to reduced research and development activities on grant funded projects. Research and development expense for the three months ended December 31, 2016 decreased by $1.2 million to $6.0 million compared to the same period in 2015. The decrease was largely driven by the reduction of licenses and related fees which were lower during the three months ended December 31, 2016 compared to the same period in 2015 due to non-recurrence in 2016 of expense related to technology access fees that were incurred in 2015. In addition, outside program costs decreased during the three months ended December 31, 2016 compared to the same period in 2015, due largely to temporary delays encountered during the conduct of Phase 1/2 human clinical trials for our XLRS and achromatopsia CNGB3 product candidates. The impact of these decreases was partially offset by higher employee-related costs that were driven primarily by the hiring of additional employees as well as higher laboratory supply costs. General and administrative expense for the three months ended December 31, 2016 increased by approximately $600,000 to $2.7 million compared to the same period in 2015. The increase was primarily driven by higher employee-related costs and share based compensation costs which resulted from hiring additional employees to support our continued expansion. The increases were partially offset by lower legal and professional fees during the three months ended December 31, 2016 compared to the three months ended December 31, 2015. Total revenue for the six months ended December 31, 2016 was $22.7 million compared to $23.3 million generated during the same period in 2015. Collaboration revenue recorded during the six months ended December 31, 2016 and 2015 resulted primarily from the amortization of upfront fees received under our collaboration agreement with Biogen which began in August of 2015. Grant revenue decreased by $300,000 during the six months ended December 31, 2016 compared to the same period in 2015 largely attributable to reduced research and development activities on grant funded projects. Research and development expense for the six months ended December 31, 2016 decreased by $12.6 million to $11.6 million compared to the same period in 2015. The decrease was largely driven by the impact of collaboration related costs and license fees that were incurred in 2015 as a result of our entry into and receipt of fees and payments under the collaboration agreement with Biogen and which did not recur in 2016. Also licenses and related fees decreased during the six months ended December 31, 2016 compared to the six months ended December 31, 2015 due to a non-recurrence of expense related to technology access fees that were incurred in 2015. In addition, outside program costs decreased in 2016 compared to 2015 due largely to temporary delays encountered during the conduct of our Phase 1/2 human clinical trials for our XLRS and achromatopsia CNGB3 product candidates. The impact of these decreases was partially offset by higher employee-related and share based compensation expenses that were driven primarily by hiring additional employees and the incremental impact of new share based incentives awarded in 2016, as well as higher laboratory supplies and other costs during 2016, when compared to 2015. General and administrative expense for the six months ended December 31, 2016 increased by approximately $200,000 compared to $5.6 million in the same period as 2015. The increase was primarily driven by higher employee-related and share based compensation cost, which resulted from higher additional employees to support our continued expansion, partially offset by lower legal and professional fees and other expenses. The higher legal and professional fees incurred in 2015 were largely attributable to professional consultations expenses associated with the negotiation and entry into its collaboration with Biogen. For the three months ended December 31, 2016, the company recorded net income of $2.1 million, compared to a net income of $3 million for the same period of 2015. For the six months ended December 31, 2016, the company recorded net income of $5.7 million compared to a net loss of $6.1 million for the same period of 2015. As of December 31, 2016 we had cash, cash equivalents and investments totaling $159.1 million. We believe that our existing cash, cash equivalents and investments as of December 31, 2016 will be sufficient to enable us to advance planned preclinical studies and clinical trials for our lead product candidates and currently planned discovery programs for at least the next two years. With that, I will close my remarks. We thank you for your interest in and support of the work we are doing here at AGTC. Operator, you may now open the line for questions and Jeff Chulay will be joining the call for the question and answer period.

[Operator:]

Thank you. Today’s question-and-answer session will be conducted electronically. [Operator Instructions] We’ll take our first question from Matthew Luchini with BMO Capital Markets. Please go ahead.

[Matthew Luchini:]

I wanted to ask a little bit more on the achromatopsia program. Specifically, I was hoping you might be able to share a little bit more color on the type of, I guess, variability that you’re seeing among patients that lead to the DSMB requiring more testing, while it's still early, can you give us a sense as to what this testing might entail and how confident you are at least at this point that you can meet your year end 2017 guidance for data. And then lastly, are there readthroughs from what was seen at this point in the B3 trail to the planned A3 trial? Said another way, I mean I guess is there risk now in the A3 program given what you seen in B3? Thanks.

[Sue Washer:]

Well thank you Matt. And that was three questions in one, so we're going to break that up and I'm going to ask Mike to address your, the first part of the question about the characterization of the results and any further color on that. Mike?

[Mike Goldstein:]

Thanks for the question, so based on its review of the data generated to date and its caution in this first in human study. The DSMC has asked to complete additional follow-up testing of patients in the low-dose group before proceeding with those things in additional patients. And while we've not seen any serious adverse events, I reported there were observations, importantly these observations varied from patient to patient. In other words, they were not consistent from patient to patient. It's really too early to comment on these patients and we are again in the process of getting additional testing so that we can get that to the FDA, so we can get more clarity.

[Sue Washer:]

Get that to the DSMC, [multiple speakers] and no serious adverse events that's reportable to the FDA. So the extra testing is for the DSMC only and you asked about timing of that Matt and we do expect to have that follow-up testing completed and reviewed with the DSMC this quarter and as far as we readthrough to other trials, we don’t anticipate an effect on other trials at this time.

[Matthew Luchini:]

Can you describe it, all though I guess what type of testing needs to be done?

[Sue Washer:]

Mike, you want to give that answer?

[Mike Goldstein:]

Yes, I mean they are typical testing that you would expect, in a safety study, follow-up tests many of which have already been done, both looking at changes overtime, and so there is nothing unusual or different compared to what you would expect to see.

[Matthew Luchini:]

Okay, thank you.

[Operator:]

Will take our next question from Jim Birchenough of Wells Fargo Securities.

[Jim Birchenough:]

So, I guess just following-up on that line of questioning. Can you say whether there has been any patients that have shown decline in vision? I'm just trying to get a sense of whether on the safety side, if this is related to something clinical and the testing that's been done is clinical testing or is it just purely safety testing? And then I had follow-up.

[Sue Washer:]

Mike, do you want to take that question?

[Mike Goldstein:]

Yes, so the observations seen have varied from subject-to-subject, but it is, I mean, clinical testing and safety testing does overlap, but they are again typical tests that you would expect to see and that are already in -- many of which are already in the protocol.

[Jim Birchenough:]

And have any of those tests gone in a direction you wouldn’t hope for them to go? Are there any measures of vision or structural measures that are going the wrong way?

[Mike Goldstein:]

We've seen variability in the data, so it's hard to make a comment at this early stage, and so again, that's why we are in the process of collecting additional information so we can develop more robust conclusions.

[Jim Birchenough:]

And then just on XLRS is there anything you can say as you've gone now gone through a second dose cohort as to whether you are seeing evidence of clinical benefit either by OCT or by visual fields or any other measure?

[Sue Washer:]

Jeff, do you want to take that question.

[Jeff Chulay:]

So as we have said before the primary objective of this study is safety and we've continued to have an acceptable safety profile. There have been no serious adverse events and the ocular inflammation that has occurred has been well controlled. We do not have sufficient duration of follow-up in subjects after the first dose level cohorts to make any definitive conclusion about the nature of changes in the secondary endpoints that are looking at visual function, visual structure and we'll wait unit we have a sufficient body of data to make a careful and robust analysis before disclosing any finding.

[Jim Birchenough:]

Okay, great. Thanks for taking the question.

[Operator:]

We'll take our next question from Steve Willey of Stifel Nicolaus.

[Steve Willey:]

I guess on XLRS, as I think maybe what you were communicating last quarter, there wouldn't be an update on all of the patients with at least six months' follow-up data until year end '16. I guess you're now saying that it's going to be mid '17 in terms of providing some kind of directional update on the data side. So just wondering if there's been any rationale for the change in guidance around timing?

[Sue Washer:]

I think that we have been signaling since the fall that we provide this interim look at XLRS dose just for those escalation portion in the middle of the year and I think as you saw from the guidance that we just gave that we have dosed 11 of the 12 patients in that cohort, with the 12th patient being scheduled. So we think we're on time to have that robust data over several patients overall a long enough period of time that we can make an interim analysis.

[Steve Willey:]

And then on the achromatopsia program again, I understand that it's really and you guys are in the process of reviewing these observations, but should we presume I think at this point that it's something that's promoter related, just given the fact that the captcha [ph] that's used between XLRS and achromatopsia are essentially the same. I'm just trying to figure out if there's anything maybe promoter specific non- captcha related that might be causing the observations?

[Sue Washer:]

I'm going to pass that to Jeff to provide an answer.

[Jeff Chulay:]

So, Steve you're correct that the promoter is different in the CNGB3 product and the RS1 product and obviously the [indiscernible] is different. But also, the route of administration is different. And so, I think that all the variables that are involved need to be evaluated carefully and that's one of the reasons we believe that the SMC has asked us to collect more information so that they can get a better understanding of the progress of the patients who are enrolled in the CNGB3 trial.

[Sue Washer:]

Remember Steve that the achromatopsia trials are sub-retinal injection and the [technical difficulty].

[Steve Willey:]

And then just to clarify then the B3 or the A3 program is -- the start of that is not depended upon the DSMC completing the observation review within the B3 program?

[Sue Washer:]

So, I'll pass that to Jeff.

[Jeff Chulay:]

So, the DSMC has not requested any change in the CNGA3 program, so at this time we don't anticipate the issues with the CNGB3 program will have an effect on other trials.

[Steve Willey:]

And then just lastly on the Bionic Sight collaboration, is there some threshold amount of healthy retinal ganglion cells that need to be present in order for this to essentially work or I'm just wondering if you need to determine if there is a reservoir of healthy enough cells that are present before as you can go ahead and inject them and enroll. Thanks.

[Sue Washer:]

And thanks for that question and I think I'm going to ask Jeff to jump in here at the end, but in many of these degenerative ophthalmology indications, it’s the retinal ganglion cells that are around the longest. So patience can lose their photoreceptors and loose some other kinds of cells and still have a good pool of retinal ganglion cells and that’s one of the reasons that we’re targeting those cells for transduction in these kinds of diseases. I don’t think that anyone has the information as to an exact number of cells, that will be required, that’s obviously part of what you would look at in both preclinical and clinical studies, is looking at patients with varying amount to those cells still available, and Jeff I don’t know if you have anything you would like to add to that.

[Jeff Chulay:]

I would just reemphasize that, in most forms of retinitis pigmentosa, although you have degeneration and loss of photoreceptors and other cells in the retinal. The retinal ganglion cells persist for very long period of time, and as we've said we will be measuring retinal ganglion cells thickness and looking at whether or not there is a relationship between that and other measures of retinal ganglion cells and the outcome of the treatment.

[Operator:]

[Operator Instructions]. We will take our next question from Mara Goldstein with Cantor Fitzgerald.

[Mara Goldstein:]

Just a question on the eye irritation [ph], I know we've talked about before, at this point are all patients in trials prophylaxed with a typical steroid or is it really just in a on an as needed basis?

[Sue Washer:]

Jeff, you want to take that question.

[Jeff Chulay:]

So for both our XLRS program under the current plan, as well as our achromatopsia and B3 and A3 programs, we do provide a prophylactic regiment that includes both oral and corticosteroids in a tapering fashion to control any potential ocular inflammation that might occur.

[Mara Goldstein:]

Okay, and then if can also ask on the issue around some of the observation being varied between patients in trial and the warrants for their follow-up testing. Are you able or at liberty to just to discuss with us the range of which observations were deems to be variable?

[Sue Washer:]

Mike, do you want to answer that question from Mara?

[Mike Goldstein:]

I think it's just too early to tell, and due to the inconsistency of what we have seen so far across patients, it's just too early to make that judgement and so I think really the most prudent course of action is to collect the additional information and then give you the information, once we've been able to have more from conclusions.

[Operator:]

We will take our next question from Gbola Amusa with Chardan Capital.

[Gbola Amusa:]

Just a couple one, the additional testing in your achromatopsia B3 program. Is it the similar sort of testing that's presumably been done in other gene therapy trails, elsewhere in the AAV space, and secondly on that, alternatively, as the additional testing related to the vendor errors you've discussed with previous results.

[Sue Washer:]

So, I'll take first part of that question first, Gbola thanks for your question and it has nothing to do with any vendor errors and it's traced to -- anything to do with the clinical trial manufacturing process or any test that a vendor did on the clinical trial material. And then Mike, you want to take other part of that question.

[Mike Goldstein:]

Yes, so the clinical testing is very typical testing that is done in this trial and then other gene therapy trials.

[Gbola Amusa:]

Okay, great. And then, if I may, just on your interesting collaboration with Bionic Sight. Could you discuss a bit more about what you found attractive about the overall collaboration in degenerative retinal diseases versus say other investigated approaches such as gene therapy, which has been clearly interesting to bigger cap companies and also such as stem cells as well?

[Sue Washer:]

Yes, what attracted us to about Bionic Sight in a big picture, was that our main set of programs were direct gene therapy or gene replacement. So we knew what gene was at risk, we knew that if we could replace that gene into a live functioning cell and return function to that cell. However, in many cases the exact genetic defect is not known or the genetic defect causes degeneration such that the original appropriate cells are not alive in big enough numbers to be able to transfuse them. And so this kind of approach, where we were bypassing kind of the unknown black box of what gene is it and we were bypassing the depth of the photoreceptors and being able to turn other cells light sensitive, we think it is very complementary to our other programs and allows us to fill a need in late stage degenerative diseases such as retinitis pigmentosa. And then so that's the big picture that attracted us. The other thing that attracted us is that we had followed the optogenetics space for a period of time and had really not seen the right set of circumstances, technology and combination of technology that we though would make a significant difference in the lives of these patients. But what we saw in the capabilities that Bionic Sight had, is that they had this unique proprietary protein that was much more light sensitive, thereby giving patients a better ability to pick-up light and recognize light that wasn’t necessarily very, very bright. So it would operate under a range of lighting conditions. And then what's most unique is the algorithm that is able to take these incoming images and mimic the retina code and be able to allow the -- transform the light coming in through a wearable device such that the quality of the image these patients are going to potentially be able to see is much higher. So it was really a combination of things, the complementary nature of the product offerings to what we already had and then the advanced capabilities of Bionic Sight to really take optogenetics to the next level and make a more impactful impact on the patients.

[Gbola Amusa:]

Great. Thank you.

[Operator:]

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

[Sue Washer:]

Well, thank you everyone for joining us today. Our outlook for 2017 continues to be strong and we are focused on executing the development plans for our very promising pipeline so as to ensure that this is a productive year for our company. We are excited about the year ahead because we are on track to collect the significant set of clinical data in indications with varying methods of actions, delivery methods and product constructs. We believe we are in a unique position to be able to analyses the best way this technology can be deployed in the eye. We also have a number of strong research programs to advance the technology in the form of new capsids, new promoters, advanced manufacturing and cutting edge analytics. Finally, we have a strong balance sheet with the resources to meet our guidance on completion of these activities. As always, I would like to recognize the strong support that we continue to receive from our shareholders, our employees, our clinical investigators and to thank the patients we participate in our trials for their time and leadership. Together we are well positioned to advance the treatment of serious optomic and other genetic disorders. Thank you to everyone on the call for participating.

[Operator:]

And that concludes today's call, all parties may now disconnect.