Applied Genetic Technologies Corporation
Q4 2017 Earnings Call Transcript

Published: 13 Sep 2017

[Operator:]

Good morning and welcome to the AGTC Fourth Quarter and Fiscal Year 2017 Financial Results Conference Call. Today's call is being recorded. Before we get started, I'd 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 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 AGTC’s Annual Report on Form 10-K for the fiscal year ended June 30, 2017. For introductions and opening remarks, I’d like to turn the call over to Sue Washer, Chief Executive Officer of AGTC. Please go ahead.

[Sue Washer:]

Good morning and thank you all for joining us today. Before we get started, I wanted to let all of you know that all of our employees and their immediate families are safe following Hurricane Irma. We are pleased that our corporate headquarters did not sustain any damage and we are back to business as usual. I'd now like to take the opportunity to introduce two new members of our Executive Team. First up is our new Chief Financial Officer, Bill Sullivan, who has more than 20 years of experience in corporate finance, leading strategic transactions, fundraising and accounting. Prior to joining AGTC, he held a variety of important leadership positions at Merrimack Pharmaceuticals, including Chief Financial Officer, Principal Accounting Officer and Treasurer. Next, our Interim Chief Medical Officer, Dr. Matt Feinsod already has three years of experience with AGTC, leading our ophthalmology product strategy. Matt is a board-certified ophthalmologist with extensive corporate and regulatory expertise in the development of novel therapies for ophthalmic diseases. Prior to joining AGTC, he was Founder and Chief Medical Officer of Imagen Biotech. Prior to Imagen, he was Senior Vice President of Strategy and Product Development at Eyetech Pharmaceuticals where he spent five years in a variety of functions, helping to develop and launch Macugen and several preclinical programs. Previously, Matt served as Medical Officer for the U.S. Food & Drug Administration, Division of Anti-inflammatory, Analgesic, and Ophthalmic Drug Products. We welcome them both to the AGTC team. I'd now like to turn the call over to Matt, who will provide an update on our lead clinical development programs, which are our gene therapy candidates for treating X-linked Retinoschisis or XLRS and achromatopsia caused by defects in either the CNGB3 or the CNGA3 gene.

[Matthew Feinsod:]

Thank you, Sue. I am pleased to have the opportunity to speak with you today in my new role as Interim CMO. Our lead clinical program, a potential treatment for X-linked Retinoschisis or XLRS, is in an ongoing Phase I/II clinical trial in which we anticipate enrolling up to 27 patients. XLRS is characterized by abnormal splitting of the layers of the retina, resulting in poor visual function in young boys that can ultimately result in legal blindness in adult men. This program is one of our programs in collaboration with Biogen. To date, we have completed enrollment of 12 patients in the first four groups which completes the dose escalation of the Phase I/II trial. We are also enrolling adult patients in the expansion group at the highest dose level and three children between the ages of six and 18 at the mid-dose level. As of today, we have dosed a total of 17 adults and one child across all groups in the trial bringing the total number of patients enrolled to 18. We are pleased that the expanded number of active sites and our strong patient advocacy work has resulted in more effective enrollment over the last quarter and expect to complete full enrollment in the trial by the first quarter of 2018. In June, topline safety data for the first 12 patients of the dose escalation phase of this trial including some patients, which have been followed for more than one-year, were presented at the Macula Society Annual Meeting. The data demonstrates that our XLRS product candidate has been generally safe and well tolerated. No treatment related serious adverse events have been reported. And as previously disclosed, mild to moderate ocular inflammation was observed in the majority of patients, which resolved either without treatment or after treatment with topical or oral corticosteroids. We have observed variability in the visual function of the 56 patients in our XLRS natural history study, as well as those dosed in our Phase I/II trial. To-date, we have not seen evidence of biological activity in the group of treated patients, which is not unexpected given the small patient pool, the relatively short period of observation in the high-dose group and the variability in the patient population. We believe that in addition to the three patients initially enrolled in the high-dose group, the full group of patients in the expansion group needs to be enrolled and followed for at least six months before meaningful conclusions can be drawn regarding biological activity. We expect to fully enroll this expansion group by the first quarter of 2018 and will present complete data after the last patient has been followed for six months. Shifting gears, our next most advanced clinical programs are those targeting achromatopsia, an inherited retinal disease in which 75% of the patient population has visual function loss caused by mutations in either of the CNGB3 or CNGA3 gene. Individuals with achromatopsia have markedly reduced visual acuity, extreme light sensitivity and complete loss of color discrimination. As most of you are aware, AGTC is developing two distinct product candidates to treat patients with either the CNGB3 or CNGA3 gene mutation. A Phase I/II clinical trial evaluating the Company's achromatopsia CNGB3 product candidate is currently enrolling patients. The Company has completed enrollment of four patients in the low-dose group, an additional patient will be treated at the low-dose to bring the total number of patients in that group to five, three of which will be patients treated by a single surgeon to minimize differences in surgical technique. The Company is collecting the data from the patients in the low-dose group to present to the Data Safety and Monitoring Committee, the DSMC, prior to enrollment of patients in the mid-dose group. We now anticipate enrolling up to 26 patients in this trial. Based on our achromatopsia B3 experience, we have made adjustments to our achromatopsia A3 clinical trial and we’ll use a single surgeon for the near-term in this trial as well. We are conducting site initiation activities and screening patients for enrollment in a Phase I/II clinical trial evaluating this product candidate. I’d like now to turn the call back to Sue to review our pre-clinical programs.

[Sue Washer:]

Thank you, Matt. I'll start my review of our pre-clinical portfolio with our program in X-linked retinitis pigmentosa or XLRP, which is the fourth product candidate in our pipeline. XLRP is an inherited retinal disease caused by mutations in the RPGR gene, which results in progressive loss of vision, meaning children are not only born with poor visual function, but then it significantly affects daily activities, but then it worsens over time. In early August of this year, the FDA granted orphan drug designation for our XLRP product candidate. Subsequently, we filed an Investigational New Drug application or IND with the FDA to support the initiation of a Phase I/II clinical trial for our gene therapy product candidate for XLRP. That IND has now cleared FDA review. We are currently conducting site initiation activities at four clinical sites and plan to initiate a U.S. clinical study with our collaborator Biogen, evaluating the safety of this product candidate in the coming months. In February, we entered into a collaboration agreement with Bionic Sight to develop an optogenetic product candidate for patients with advanced retinal disease. This product would introduce genes for light-sensitive proteins into ocular cells in order to monitor and control their activity using light signals and thus potentially allow patients without functional photoreceptors to regain visual function. Through this collaboration, the companies will seek to develop a new optogenetic therapy that leverages AGTC's deep experience in gene therapy and ophthalmology and Bionic Sight's innovative neuro-prosthetic device and algorithm for retinal coding. We are working with Bionic Sight to file their IND for this product candidate, which we now expect to occur in 2018. We also continued to make substantive progress in our discovery programs with Biogen as well as our own research programs both in ophthalmology and otology. I will now turn the call over to Bill Sullivan, who will briefly review our fourth quarter and fiscal year 2017 financial results.

[William Sullivan:]

Thank you, Sue. Before discussing our financials, I would like to start by saying I am delighted to be talking with you today in my new capacity as CFO of AGTC and I look forward to working with everyone moving forward. Now turning to our financials. Our fourth quarter 2017 and full-year 2017 financials were included in our press release, which was distributed a short while ago. Starting with our income statement. In fiscal year 2017, we generated net income of $400,000 compared to a net loss of $1.4 million in fiscal year 2016. The $1.8 million increase in net income was primarily due to a large $13 million decrease in R&D expenses in 2017 offset by the following. Reduced 2017 revenues of $7.9 million, increased 2017 G&A expenses of $1.3 million, and increased 2017 tax expense of $2.4 million. The large decrease in R&D spending of $13.2 million was primarily due to a $12 million reduction in sublicense expense from fiscal year 2016 associated with our collaboration arrangement with Biogen and a $3 million reduction in licensing and milestones fees associated with our early stage discovery and research programs. These decreases were partially offset by increased employee-related expenses. The decrease in revenue of $7.9 million was primarily due to recognizing $5 million of milestone revenue in fiscal year 2016 associated with achieving a patient enrollment milestone under our collaboration arrangement with Biogen, and to a lesser extent due to reduced revenue associated with the amortization of upfront fees associated with the Biogen collaboration. The increase in G&A expenses of $1.3 million was primarily driven by the hiring of additional employees. The increase in tax expense of $2.4 million results from the recognition of revenue related to the Biogen agreement for tax purposes, which is accelerated compared to GAAP revenue. While our taxable income is largely offset by the use of NOLs, we did incur tax expense in 2017 related to federal alternative minimum tax, the apportionment of income to certain state jurisdictions where we do not have NOLs and the recognition of a reserve for uncertain tax positions. Now turning to our balance sheet and financial guidance. We ended fiscal year 2017 with a strong balance sheet. Total cash, cash equivalent, investments amounted to $138.4 million. We believe these funds will be sufficient to allow AGTC to generate data from its ongoing clinical programs to move the pre-clinical optogenetic program in collaboration with Bionic Sight into the clinic and fund currently planned research and discovery programs for at least the next two years. That concludes the team's remarks today. Operator, you may now open the line for a question-and-answer period.

[Operator:]

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Matthew Luchini with BMO Capital Markets. Please proceed with your question.

[Matthew Luchini:]

Hi. Thanks. Good morning and thanks for taking the questions. So first I guess on XLRS, I was hoping you could expand a little bit more on the variability in visual function that was seen particularly in the dosed, in the Phase I/II study and if there were differences there relative to what was seen in the natural history study. And relatively, I guess the question is you haven't seen any evidence of biological activity to date. So what is – that you have seen or what is it that gives you confidence that I guess simply increasing the number of patients treated will lead to a different outcome there? And then for achromatopsia, I guess the question is, it looks like you've added maybe one patient to the B3 program since the last time we spoke. So how should we be thinking about data timelines here? The last formal guidance was sort of by the end of this year. Is that something we should still be looking for or is this now a 2018 event? Thank you.

[Sue Washer:]

Well, thank you, Matt for those questions, and those are two very important questions, and I will try to address them. So first of all with the XLRS trial, the variability is in the XLRS patients is something we've talked about for a period of time. And some of the data was even presented from the natural history study at one of our research meetings where we just see large differences from patient-to-patient in what their schisis volume is, what their visual acuity is et cetera. While it's stable over time within a patient, the patient variability is rather extensive. And we've seen this same kind of patient variability in the patients in the active trial. So first of all there's no – we don't feel there's a difference in the variability seen between the natural history study and the variability seen in the actual active trial. And given that variability, I think that as you look at any kind of dataset, when you have that kind of variability, it takes a larger N [ph] to be able to see any kind of trend. And so we've only had the three patients in the high dose group. We've now dosed an additional six patients in that high dose group and we plan to dose between 12 and 15 total in that expansion cohort. And we feel we need that level of end to be able to make a robust determination of the data. Then switching to achromatopsia, we have dosed the one patient since we last talked to you in May. And remembering that these patients we have been following very carefully since this is a – the very beginning of our first-in-man study and we continue to follow those patients very carefully. And that scheduling these patients involves many moving parts of the patient, the patient's family, the treating physician, and the surgeon, and then being able to follow them in between patients. So it's just a matter of logistics. Our actual last guidance for B3 Matt in May was that we would provide an update once we'd met with the DSMC after the fifth patient was dosed as to what the actual data guidance would be, and that remains our guidance now is that we will provide timing on data after we have that fifth patient dosed.

[Matthew Luchini:]

Do you expect to have the fifth patient dosed before the end of the year?

[Sue Washer:]

We are moving forward screening patients actively is getting them scheduled with the surgeon and so that's just a matter of pushing through on the logistics.

[Matthew Luchini:]

Great. Thank you.

[Operator:]

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

[David Nierengarten:]

Hi. And so maybe another question on XLRS. Is there any way or any room to increase the dose if you see some signs of activity by thinking you can get better or you are at the limits of dosing?

[Sue Washer:]

That's a great question. We've talked about that many times before. We currently do plan to complete the trial as per protocol, which is with this expansion cohort at the highest dose that was done through the dose escalation study. But as you and I and with many others, we've talked about that there's always a possibility once you analyze the data and determine what the outcomes have been to go to a higher dose, but we currently plan to dose and complete the trial as planned and analyze that high dose group when we have a bigger N of patients.

[David Nierengarten:]

And maybe just a couple of quick follow-ups on that. Would you – if you were to increase the dose, I know we're talking hypotheticals here, would it require kind of the same escalation plan as prior or do you think you could just move into dosing a regular cohort at a higher dose and then I have another quick question after that?

[Sue Washer:]

Yes, I think it's premature to speculate on it and how we would move forward until we've analyzed the data in the patients we have dosed.

[David Nierengarten:]

Okay. And then maybe to XLRP, how are you feeling I guess on the identifying patients you have, I mean it's a little bit more common disease you know maybe than some rare diseases, you took aside some patients, essentially lined up that they are thinking about screening, I know you haven’t had the IRBs set yet or you’re waiting for the IRBs to start focusing on identifying the patients? Thanks.

[Sue Washer:]

So for XLRP like we have with other programs, we've actually conducted a natural history study at one of our sites and they've been following some of these patients have been their patients for many years. But we've been following them between 18 and 36 months, and so we have that body of patients at one of the sites. And then the other three sites are initiating a natural history studies as we go. And so we feel by again trying to get ahead of the curve with identifying the patients bring them in for these baseline natural history study exams that it will facilitate active trial enrollment.

[David Nierengarten:]

Yep, okay. Got it. Thanks.

[Operator:]

Our next question is from the line of Mara Goldstein with Cantor Fitzgerald. Please proceed with your question.

[Mara Goldstein:]

Great, thank you. Hey Sue, thanks for taking the question. With respect to this variability in patients in XLRS, maybe if I can just ask is, is this a function of just different baseline characteristics or are you just saying that much variability in the rate and decline of visual acuity over time?

[Sue Washer:]

So it's really just a function of the variability from patient-to-patient and so when you have variability from patient-to-patient, you need a bigger end to be able to really see an effect for the group. And just to remind people that an individual patient basis, their visual function is fairly stable over time. It bounces due to the variability in the test. I think people are pretty much aware that there's variability in visual acuity just from test-to-test. So I think it's the variability in the test combined with the variability from patient-to-patient that warrants us needing a higher number of patients before we can accurately analyze the data.

[Mara Goldstein:]

Okay and just on XLRP, on a trial, will use the same sites for that program as you – that are currently open?

[Sue Washer:]

So it's an overlapping number of sites across and we start to – I think we've talked about this a few times before for XLRS achromatopsia B3, achromatopsia A3 and XLRP. There's a commonality of sites, but each of the programs also have some unique sites and so it’s site dependent on whether they are already enrolling and active in one of our other trials or whether it's a new site. In any case even if they're already active in one of our other trials, they still have to go through the site initiation activities for a specific trial. It still needs to go through the IRB for that specific trial et cetera, so while there's a familiarity and it makes it more – somewhat more efficient. We still have to go through all of the same activities whether it's a new site or a currently used site for one of our other trial.

[Mara Goldstein:]

All right, thanks very much.

[Operator:]

Thank you. [Operator Instructions] Our next question is from the line of Stephen Willey with Stifel. Please proceed with your question.

[Unidentified Analyst:]

Hi, this is [indiscernible] for Stephen Willey. Thanks for taking our questions. With respect to the XLRS Phase I, Phase II trial where there is no biological activity to-date. We understand that to be increased patient number would be able to accommodate for the patient variability, but will be increased patient follow-up be able to circumvent or sort of accommodate the test variability that you mentioned?

[Sue Washer:]

We think that extended time of follow-up as well as an increase in the number of patients will help to address both the variability in the patients and the variability in the test.

[Unidentified Analyst:]

Great. And just one follow-up question with respect to the ACHM Phase I – Phase II trial. How many patients will be treated by a single surgeon?

[Sue Washer:]

So what [indiscernible] will be achromatopsia trial is that we had originally in the first three patients seen some variability and outcomes that caused us to switch to a single surgeon. That single surgeon is now dose two patients and we will dose the fifth, which will be the third patient that’s dosed. So that we will be able to analyze the outcomes for three patients dosed with the single surgeon such that were eliminating much of the variability in the surgical technique and we will be able to analyze the data without that potential variability in surgical technique, so five patients total in the low-dose, three of which will have been treated by a single surgeon.

[Unidentified Analyst:]

Great. Thank you.

[Operator:]

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

[James Birchenough:]

Yes. Hi, guys. Thanks for hosting the call. Just on that surgical variabilities that you talked about. When do you expect to – do you have any insights in what aspects of the variability are driving different results and when do you think you'll be able to incorporate some of the enhancement that this one surgeon is identified in the future protocols?

[Sue Washer:]

So I think we talked about this a little bit on our May call and the subretinal injection as you know Jim is more complex than the standard intravitreal injection. And so exactly how surgeons approach the retina, create that subretinal bleb, insert the gene therapy vector, and then withdrawal from eye – can be slightly different from person-to-person. And so we have standardized around the single surgeon. And as we talked about in May, our plan going forward is to have a robust surgical vetting and training program. We've already begun on that to be able to add additional surgeons both on the East Coast as well as in for A3. As you all know, we have a site coming on line in Israel and so that surgical vetting and training process is in place with those additional surgeons.

[James Birchenough:]

Got it. And then just in terms of both the XLRP trial and the A3 trial, I might have missed it earlier, but have you identified patients and could you speak how quickly you think enrollment might go there?

[Sue Washer:]

Yes, for both of the A3 and the B3, we will update guidance on those programs once we dose that fifth patient and then we'll be able to provide guidance going forward. For XLRP, as I discussed with Mara, we have four sites that are going through those initiation activities and clicking through all those IRB and other activities that have to happen before you can start enrolling patients. And one of the sites has already been working with us on a natural history study. The other three sites are starting those studies. So we just need to get through those site initiation activities and feel that we've identified patients. And as we have mentioned in the press release and 10-K, we expect to start dosing in the first quarter of 2018. And once we start dosing, we'll provide additional guidance on data.

[James Birchenough:]

Got it. Thanks for taking the questions. End of Q&A

[Operator:]

[Operator Instructions] Thank you. At this time, I would like to turn the floor back to Sue Washer for closing remarks.

[Sue Washer:]

Well, thank you all for your time today. As always, we are pleased to share our progress with you. Since our last call, we have made significant progress in enrollment of our XLRS and achromatopsia trials, enrolling a total of seven additional patients, due to the very hard work of our clinical group and our patient advocacy efforts. We also continue to make significant progress, strengthening our proprietary, manufacturing and analytical processes, which recently resulted in newly allowed intellectual property. Our research partnerships in advanced capsids and promoters as well as new ophthalmology and otology programs are also progressing well. In addition to our exciting and diverse pipeline of research and clinical programs and our strong collaborators Biogen and Bionic Sight, our resources include a growing list of patient support an advocacy groups. In August, we announced a partnership agreement with the Foundation Fighting Blindness or FFB to support our organizations shared mission to advance gene therapy research to treat inherited retinal diseases by helping to support the FFB’s patient outreach and genotyping effort. Bringing new treatment options the patients with these diseases is a communal effort and we continue to be encouraged by the strong support we are receiving from such organizations and our investigators and our partners. We will never pass up the opportunity to recognize the patients who participate in our trial and are growing and talented team in that AGTC. Both of these groups strive daily to improve the lives of those with inherited retinal diseases. And by working together, I'm confident that we will achieve that goal. Thank you to everyone on the call for participating.

[Operator:]

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